Relief for Those Selling Income Properties

Tax Alternative to 3.33% California Withholding: Effective January 1, 2007, a seller required to have 3.33% of the sales price withheld for income tax purposes may elect an alternative withholding. The alternative withholding is an estimate of the seller's tax liability calculated by multiplying the recognized capital gain by the highest state tax rate for individual taxpayers (or the corporate tax rate for corporations), regardless of the taxpayer's actual tax bracket. Under existing California law, a buyer must withhold 3.33% of the sales price from the seller's proceeds unless an exemption applies, such as when the property is the seller's principal residence, the property is in a 1031 exchange, or the seller will not realize any capital gains. The new law applies to non-exempt sellers who may now elect to have less than 3.33% withheld. A seller opting for this tax alternative withholding must certify the amount to be withheld in writing under penalty of perjury. C.A.R.'s Standard Forms Advisory Committee is considering the impact this new rule will have if any on the "Seller's Affidavit of Nonforeign Status and/or California Withholding Exemption" (Form AS). Source: Assembly Bill No. 2962.

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