The confusing and distracting California 593 Real Estate Withholding Tax Statement
YOU HAVE QUESTIONS, WE HAVE ANSWERS!
VIVA ESCROW Q & A SEGMENT
(Real questions sent to us – verbatim!)
i am selling a property i inherited and trying to fill out form 593 and i do not know how to answer
Note: The “593” is the industry shorthand for the California 593 Real Estate Withholding Tax Statement. This is a required California Tax form for all Sellers of California real property. It requires notification and calculation to the State of California of advance withholding of proceeds upon the completion of a real property sales transaction.
If you inherited the property from an individual(s), there are a few things that you need to ask yourself. Use the 593 form in this link as a guideline: https://www.ftb.ca.gov/forms/2022/2022-593.pdf.
- Is this property your principal residence? Or was this property the principal residence of the deceased person you inherited from?
If the answer to these 2 questions is “Yes”, then you can be exempt from the withholding and you can check box #1 and #2 of Part III on Page 1 of the 593 form.
If not, then, the next question is:
- Are you selling at a loss, or will there be minimal gain in the sale? It is important that you check with your financial advisor or CPA on this question.
If so, check #3 on Part III, then go to Part VI on Page 2 and complete that section with your advisor’s input.
If not, then the next question is:
- Will you be buying another property to replace this one and doing an IRS Section 1031 Tax Deferred Exchange?
If so, check #10 on Part III. Also, contact your Escrow Company and a 1031 Exchange Intermediary company to set up your exchange.
If not then your last choice is
- Pay the 3.33% of the sales price and get the money back when you declare income tax at the end of the year. Check with your financial advisor and CPA.
Go to Part VII, answer line #36 A, and insert the 3.33% amount in line #37
The 593 may not be easily understood and the form may look complicated, so what you should do is ask your financial advisor and CPA as there are monetary consequences if filled out incorrectly. Your Escrow Officer can answer some of your basic questions, but cannot provide any in-depth analysis.
One thing not mentioned above is what happens in an “Installment Sale/Seller Carry Back” scenario in which the Seller cannot claim an exemption and yet he is getting his proceeds in increments through the years. When that scenario happens, the Buyer will need to step in and do the withholding as the payments are made in the future. It is important to call your financial counsel and your escrow officer for background information before you negotiate such a Seller carry back contract.
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Why does your Escrow Officer refuse to disburse your money the way you want?
You Have Questions? We Have Answers!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
“Escrow is my FOREMOST language!”
The opinions expressed in this blog are solely the author’s.
Your comments and viewpoints are always welcome.
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