Real estate withholding laws changing.

• Position: Real Estate - Federal Tax Board, California - Interview

New real estate withholding laws take effect Jan. 1. To learn what these new regulations mean to your clients or your business, the FTB provides the following Q&A.

Q: What are the changes to real estate withholding?

A: Assembly Bill 2065 (Chapter 02-488) revised Revenue and Taxation Code Sect. 18662 for sales of California real property that close on or after Jan. 1, 2003.

For sales closing before Jan. 1, withholding is required when the seller is a non-resident or a corporation with no permanent place of business in California.

The new law expands the withholding requirement to include residents. The new law also eliminates the waiver process for individuals, but provides more exemptions.

Q: What is real estate withholding?

A: Real estate withholding is a prepayment of state income taxes for sellers of California real estate.

Q: Who is subject to withholding?

A: For sales closing on or after Jan. 1, all individuals who sell California real property and do not qualify for an exemption are subject to withholding. Non-individual sellers with a last known street address outside of California who do not qualify for an exemption remain subject to withholding.

Q: Who are individuals? What are non-individuals?

A: Individuals are human beings. Non-individuals are entities, other than individuals, such as corporations, estates, partnerships and trusts.

Exceptions include revocable (grantor) trusts, which are not considered to be entities for taxable purposes.

So, if the property is held in the name of a grantor trust, the seller is considered to be the grantor, who is frequently an individual.

Q: Is the trustee or the trust considered the seller?

A: If the trust is irrevocable, then the trust is the seller and falls under the requirements for non-individuals. If the trust is revocable, then the seller is the grantor and would usually fall under the requirement for individuals.

Q: What are withholding exemptions for individual sellers?

A: * Total sales price does not exceed $100,000;

* Property is the seller's principal residence (IRC Sect. 121);

* Sales resulting in a loss for California tax purposes;

* Like-kind exchanges, with the exception of boot (IRC Sect. 1031);

* Involuntary conversions (IRC Sect. 1033); or

* Certain foreclosures.

Sellers meeting one of these exemptions must sign a written certification (Form 593-C) to be exempt from withholding.

Q: What are exemptions for non-individual sellers?

A: * Corporations with a permanent place of...