Sale of CA rental

[Duane Anderson]

Taxpayer lives in WA but has two rentals in CA, one of which was sold for a $250,000 gain in 2015. At closing $15,000 was deducted from his net proceeds for CA taxes but he was told at closing that all of that would be refunded to him when he files ihis CA 2015 taxes......But the tax return shows a tax of some $20,000 on the sale of the rental with $15,000 being withheld so he owes another $5,000 according to the CA tax return prepared. Is the taxpayer correct that NO CA tax is due on the sale? (That would be true if it was his single family residence, but I can find no exception for the sale of a rental) ....Thanks,,,Duane Anderson

[Lion]

Does he have any carryforward losses that are now released with the complete disposition of this rental? That would lower his tax liability.

[Y2KEA]

California requires backup withholding on the sale of non personal residence real estate.

Sale of the rental property is taxable on the gain as ordinary income for California purposes. Based on the facts in the OP, the CA balance due of $5000 is correct.


As Lion said, make sure there are no prior unallowed losses on this activity which would be freed up for an EDPA.


Whoever told him he would get it back is misinformed or the taxpayer heard what he wanted to hear and not what was actually told to him.

Technically he "gets it back" in the form a tax credit for the withholding.

[Roland Slugg]

When I lived in California, I encountered a number of escrow agents who made that (or a similar) misleading statement about the 3.33% CA withholding. Yes, the taxpayer "gets it all back," but only as a credit against his CA tax for the year. It's no different from an employer telling an employee, "You will get all this income tax back that's being withheld from your paychecks."

Perhaps not!

[S T]

Nope in Calif - possibly will not receive all of the withholding back on the sale of real estate. Just completed a return that had approx $ 9,500 withheld through escrow on a Ca 593 form - and client will only receive approximately $ 2,800 in Calif refund

Property was sold at a gain and then the recapture on depreciation.

Client could hear what they want to hear depending on how Escrow explains to them

Sandy