claiming CA franchise withholding tax on sale of rental property on Federal return

[Roddog]

Client had over 28k withholding on sale of rental in CA. California withholds 3.33% from non resident property sellers. This includes U.S. Citizens and U.S. residents that live in other states.

I am wondering where to place the tax payment on the Federal return.
Would the payment be an expense of selling and subtracted from sale price or charged to real estate taxes under expenses for rental in current year, or claimed on schedule A under taxes paid?

[Rapid Robert]

Client had over 28k withholding on sale of rental in CA.

I am wondering where to place the tax payment on the Federal return.
Would the payment be an expense of selling and subtracted from sale price or charged to real estate taxes under expenses for rental in current year, or claimed on schedule A under taxes paid?

It goes the same place where all other state income tax payments go -- Schedule A. And limited to $10K deductible beginning 2018.

To claim it anywhere else on the return would be fraudulent, especially since it's not even an actual tax liability, it's just withholding, and some or all of it may be refunded.

[Roddog]

CA Franchise Tax

Schedule A is for reporting personal tax payments, the property is considered rental property at time of sale and the cost was withheld from the closing document for the rental. If a refund is due, the refund would be taxable in 2018.
Should rental property cost and expenses be allocated to personal area of schedule A.

[Rapid Robert]

Schedule A is for reporting personal tax payments, the property is considered rental property at time of sale and the cost was withheld from the closing document for the rental. If a refund is due, the refund would be taxable in 2018.
Should rental property cost and expenses be allocated to personal area of schedule A.

Even though it's close to filing deadline, I'll answer the question again, since everyone has to start somewhere.

IRS Pub 535:

"Federal income taxes. You cannot deduct federal income taxes.

State and local income taxes. A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040)."

[taxea]

Schedule A is for reporting personal tax payments, the property is considered rental property at time of sale and the cost was withheld from the closing document for the rental. If a refund is due, the refund would be taxable in 2018.
Should rental property cost and expenses be allocated to personal area of schedule A.

I think what Rapid is trying to tell you is that the tax was withheld at the closing of the sale. Input the 1099s as you normally would and it will transfer to where it belongs as long as you accurately handle the remainder of the sale reporting.

[Roddog]

Thank you, I understand the withholding tax should be allocated to tax section on schedule A under other State taxes for individuals.

[abctax]

To clarify...

The Franchise Tax Board implements this withholding on all CA real estate sales by individuals, not just non-residents.

And it is either 3 1/3% of the sales price, or 12 1/3% of the gain, as computed on Form 593 -A, B or C.

IF the sale will not generate a taxable gain (sale of primary residence with gain of 250/500,000 gain for example, or a 1031 Exchange), the seller can so state on Form 593 and there will be no withholding.