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Withholding Tax on Sale of Real Property - Frequently Asked Questions

1. I've heard about a new "tax" on the sale of real property. What is this, and how can I get more information?
2. I am an out-of-state owner of rental property in California and was told by my property manager that he is required to withhold income from rents collected to set aside for property tax payments. What law requires this?
3. What are the types of that transactions require taxes to be withheld?

1. I've heard about a new "tax" on the sale of real property. What is this, and how can I get more information?
   

   Effective January 1, 2003, state law generally requires an income tax withholding for individuals that have sold real property. Withholdings are prepayment of California state income or franchise tax submitted to the Franchise Tax Board (FTB); it is not a property tax. Additional information and forms are available from the FTB's Web site at http://www.ftb.ca.gov/individuals/wsc/California_Real_Estate.html. Or, you may contact the Franchise Tax Board by telephone at (888) 792-4900 or by e-mail at wscs.gen@ftb.ca.gov.

2. I am an out-of-state owner of rental property in California and was told by my property manager that he is required to withhold income from rents collected to set aside for property tax payments. What law requires this?
   

   The withholding of rents collected is not for property tax payments. In accordance to Revenue and Taxation Code section 18862, a withholding agent is required to withhold a certain percentage from all rents and royalties from California assets made to a nonresident, unless the withholding agent receives a waiver from the FTB.

3. What are the types of transactions that require taxes to be withheld?
   

   Pursuant to Revenue and Taxation Code section 18862, withholding agents are required to withhold income when they receive California source income payments for residents and nonresidents of California in the following situations:

   • Sale of California real estate.
   • Trust and estate distributions.
   • Partnership and limited liability company distributions.
   • California source income paid to nonresidents.

   For complete information on withholdings, please visit the Franchise Tax Board, Publication 1017 found at:  https://www.ftb.ca.gov/forms/2011/11_1017.pdf