05 Jan What is a Real Estate Withholding Certificate – Form 593-C?

California requires that income tax for the sale of a home sale must be withheld.

Today, we’ll share with you more information about this form, why it’s important and key information you’ll want to know about before completing it. 

So, let’s get started!

What is the 593-C Form?

• Seller fills out the State of California Real Estate Withholding Certificate (593-C).
• Escrow provides this form to the seller, typically when the escrow instructions have been prepared and sent out for signatures.
  

How to Complete the 593-C Form

• The standard amount of taxes to withhold is equal to 3 1/3% of the total sales price.
• If the seller claims an exemption by filling out the 593-E form, the percentages will be different if it is reduced withholding. These are reflected on the form itself.
• If the seller is an individual, enter the social security number (SSN) or individual taxpayer identification number (ITIN) as indicated on the 593-C form.
• If the sellers are spouses/registered domestic partners (RDPs) and plan to file a joint return, enter the name and SSN or ITIN for the spouse/RDP on the 593-C form in the space provided.
• If there is more than one seller and the sellers are not married/RDPs, then each seller must complete their own 593-C form.

What Entities May Be Considered “Individuals” by the Franchise Tax Board?

1. Single Member LLC
   If the seller is a single member disregarded LLC, enter the name and the tax identification number of the single member.
2. Grantor Trust
   • Created when the trust is formed by the grantor(s), and the grantor(s) are also the trustee(s) of the trust.
   • One example is a Family Trust. The grantor trust is disregarded for tax purposes, and the individual seller must report the sale and claim the withholding on individual tax returns.
   • If the trust was a grantor trust that became irrevocable upon the grantor’s death, enter the name of the trust and the trust’s federal employer identification number (FEIN) on Form 593-C. Do not enter the decedent’s name or trustee’s name or SSN.

What Are Exceptions to Withholding?

Certain real estate transactions are exceptions to state income tax withholding, including:

• Total sales price is $100,000.00 or less.
• The property is being foreclosed upon pursuant to a power of sale under a deed of trust, or sold by a deed in lieu of foreclosure.
• The transferor is a bank acting as a trustee other than a trustee of a deed of trust. 
• The seller certifies to an exemption.

What Are Exemptions to Withholding?

There are a number of exemptions.

1. The most common exemption is the seller’s principal residence as set forth under Internal Revenue Code (IRC) Section 121.Typically, the seller must have owned and lived in the property as their primary residence for at least two years during the five-year period ending on the sale of sale.
2. Another is a loss or zero gain. Claiming this exemption will require form number 593-E to be filled out and signed by the seller.
   

If any of the first three Exceptions to Withholdings apply, the seller will check that exception on the 593-C form and then sign it.  If the seller checks number 4 on the 593-C form, claiming an exemption, there is an additional form which will need to be filled out.

The California Franchise Tax Board website has provided more information with a complete list of exemptions, as well as forms 593-C and 593-E. It is always important for the seller to check with their tax advisor when filling out the 593-C and it is even more important if the seller is filling out a 593-E exemption form.

We hope that you found this article helpful! Of course, if you have any questions about Form 593-C or need any type of assistance with an escrow, please contact us. We are here to help!