California Changes 3.3333% Mandatory Withholding Requirement On Sale Of Real Estate

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California Changes 3.3333% Mandatory Withholding Requirement On Sale Of Real Estate

  1. 1. California Changes 3.3333% Mandatory Withholding RequirementOn Sale Of Real EstateCalifornia Assembly Bill AB 2962 was approved and signed into law by California Governor ArnoldSchwarzenegger on September 22, 2006.Californias current income tax withholding law enacted in 2002 and effective January 1, 2003 underGovernor Davis requires a mandatory income tax withholding requirement of 3 1/3% based on thegross sales price on the disposition (sale) of real property under certain circumstances."The problem with Californias current income tax withholding law is that the calculation of themandatory withholding requirement of 3 1/3% is based on the taxpayers gross sales price and bearsabsolutely no relationship to the taxpayers actual capital gain income tax liability," said William L.Exeter, president and chief executive officer, Exeter 1031 Exchange Services, LLC. Mr. Exeter furtherstated, "It actually causes over-withholding for many taxpayers."Assembly Bill AB 2962 amends Sections 18662 and 18668 of the California Revenue and TaxationCode with regards to the mandatory withholding requirements on the disposition (sale) of real estateby certain taxpayers. It is designed to reduce the problem of over-withholding by allowing taxpayersto elect an alternate method for calculating the withholding amount instead of the current 3 1/3%based on the taxpayers gross sales price.Taxpayers will be able to choose a withholding amount based on the maximum income tax rate forindividuals or corporations applicable to the actual capital gain on the disposition (sale) of their realproperty. "This solution should eliminate most of the California withholding problems that we haveseen day in and day out," said Mr. Exeter.Taxpayers will be required to complete a certification under penalty of perjury to the buyer or REEP(Real Estate Escrow Person, including but not limited to attorney, escrow officer or qualifiedintermediary) to elect this withholding method.Industry professionals may be interested in reading the California Franchise Tax Boards Analysis ofAmended Bill and the Revised Analysis on Assembly Bill AB 2962. Click here for more completedetails and links to text and analysis of AB 2962.Assembly Bill AB 2962 is effective for dispositions (sales) of California real property closing on orafter January 1, 2007.burbank real estate

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