Change 3.3333% California Withholding mandatory requirement on the sale of real estate

California Assembly Bill AB 2962 was approved and signed into law by California Governor Arnold Schwarzenegger September 22, 2006.

California, the current income tax law enacted in 2002 to source and effect from January 1, 2003 with Governor Davis calls for a tax liability income withholding requirement of 3 1/3% based on the gross sales price on the disposition (sale) of property in certain circumstances.

"The problem with the current California law withholding tax on income is that the calculation of the withholding requirement mandatory 3 1/3% is based on the price the taxpayer's gross sales, and has absolutely no relationship to the taxpayer's actual liability gain tax income from capital, "said William L. Exeter, president and chief executive officer, Exeter 1031 Exchange Services, LLC. Mr. Exeter further stated, "It 'actually causes over-the source for many taxpayers."

Assembly Bill AB 2962 amending Sections 18662 and 18668 of the Revenue and California's tax code with regard to the withholding requirements regarding the disposition (sale) of real property by certain taxpayers. It is designed to reduce the problem of too much restraint, allowing taxpayers to choose an alternative method for calculating the amount deemed from the current 3 1/3% based on the taxpayer's gross sales price.

Taxpayers can choose an amount of withholding based on the maximum rate of income tax for natural persons or legal provisions effective applicable to the gain (sale) of their property. "This should eliminate most of the problems at the source of California that we have seen day after day," said Exeter.

Taxpayers must complete a certification under penalty of perjury to the buyer or REEP (Real Estate Escrow Person, including but not limited to the attorney, escrow officer or qualified intermediary) to elect this method of restraint.

Professionals may be interested in reading the analysis of the California Franchise Tax Board Bill amended and revised analysis on Assembly Bill AB 2962. Click here for more details and links to full text and analysis of AB 2962.

Assembly Bill AB 2962 is effective for dispositions (sales) Closing California real property from January 1, 2007 .......