California Form 593 —
Real Estate Withholding Guide

Withholding is required when all three of the following are true: (1) the property is California real property, (2) the sale price exceeds $100,000, and (3) no valid exemption applies. The default rate is 3.33% of the gross sale price.

Both California residents and non-residents are subject to withholding — though residents have additional exemptions available, particularly the primary residence exclusion that eliminates withholding for most homeowners.

Sellers may elect to calculate withholding based on the gain only. Applicable rates:

• Non-resident individuals: 12.3% of gain
• Corporations (excluding S-Corps): 8.84% of gain
• Financial S-Corps: 10.84% of gain

This method benefits sellers with large mortgage balances — where gross proceeds are much higher than net gain. Requires completing the optional gain section of Form 593. Consult a CPA to compare methods.

See also: California Capital Gains Calculator — estimate your net gain before choosing a withholding method.

If the total sale price is $100,000 or less, withholding is not required regardless of residency, property type, or gain amount.

If completing a qualified 1031 exchange with a Qualified Intermediary (QI) holding funds, withholding is not required on the relinquished property. The QI must be designated before or at the close of escrow — there is no retroactive exemption.

See also: 1031 Exchange Calculator — calculate your deadlines and deferred tax.

If electing installment sale treatment, withholding applies to each installment payment rather than at closing. Withholding is 3.33% of each installment received.

• California corporation: Exempt — CA corps file CA returns directly
• S-Corp, partnership, LLC: Must provide written certification of CA return filing — escrow can then waive withholding
• Non-California entities: Subject to withholding at entity-specific rates; consult FTB guidance

The 3.33% is calculated on the gross sale price, not net proceeds after paying off your mortgage. On a $1,500,000 sale with a $1,200,000 mortgage: escrow withholds 3.33% of $1,500,000 — not $300,000. Plan your cash needs at closing accordingly.

To claim the 1031 exchange exemption, a Qualified Intermediary must be engaged before close of escrow. Attempting to set up the exchange after closing forfeits the exemption — withholding has already been remitted and cannot be reversed through the exchange process.

If title transferred to a trust, LLC, or living trust since purchase, Form 593 must reflect the current entity as seller. Mismatches between the vesting deed and Form 593 create FTB correspondence issues and can delay your withholding credit.

If a seller falsely certifies an exemption, the FTB may assess a penalty of $1,000 or 20% of the required withholding, whichever is greater. Penalties apply to both the seller certifying falsely and the withholding agent who relies on a certificate that is clearly erroneous.

Over-withholding is common when the 3.33% default method is used and your actual CA tax on the gain is less. The full withheld amount is credited against your CA tax liability when you file your CA return. File promptly to recover over-withheld funds.