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Withholding on sale of rental property based on installment sale

November 15, 2016 • Greg Wiebe • Log In to Post Comments

Client was notified during escrow on sale of rental property, where client was carrying the paper, that on each installment payment BUYER is required to make payments on principle portion of note to the FTB.  Can seller pay all the real estate withhholding based on 3 1/3% of total sales price upfront rather than making the BUYER withhold on each subsequent note payment?  If so, how do we do that on form 593.

If not, I know I can opt out of installment sale treatment and recognized entire gain on tax return in the year of sale and request that subsequent payment not be withheld.  What form do I file to request this?  Do I just type letter requesting this? Thanks for the help.


Here's from Spidell's Analysis and Explanation of CA taxes

For dispositions of California real property interests buyers must withhold on the principal portion on each installment sale payment. The buyer must complete and sign Form 593-I, Real Estate Withholding Installment Sale Acknowledgement, and attach a copy of the promissory note with the first installment payment. (R&TC §18662)

If the seller does not give the installment gain information amount to the buyer, or the seller does not want to give this figure to the buyer, then the alternative withholding on an installment sale cannot be used and the buyer must withhold at a rate of 3⅓% of each principal payment.

If the seller elects not to report the sale on the installment method pursuant to IRC §453(d), after filing the tax return and reporting the entire gain on Schedule D-1, the seller must submit a written request to the FTB to release the buyer from withholding on the installment sale payments. Once the request is received, the FTB will issue an approval or denial within 30 days.


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