Real estate withholding laws changing. (Real Estate).New real estate withholding Withholding Any tax that is taken directly out of an individual's wages or other income before he or she receives the funds. Notes: In other words, these funds are "withheld" from your wages. laws take effect Jan. 1. To learn what these new regulations mean to your clients or your business, the FTB FTB Franchise Tax Board (California; they collect income and sales tax) FTB Family Tax Benefit (Australian welfare assistance) FTB First Time Buyer (housing) provides the following Q&A. Q: What are the changes to real estate withholding? A: Assembly Bill 2065 (Chapter 02-488) revised Revenue and Taxation Code Sect. 18662 for sales of California real property that close on or after Jan. 1, 2003. For sales closing before Jan. 1, withholding is required when the seller is a non-resident or a corporation with no permanent place of business in California. The new law expands the withholding requirement to include residents. The new law also eliminates the waiver The voluntary surrender of a known right; conduct supporting an inference that a particular right has been relinquished. The term waiver is used in many legal contexts. process for individuals, but provides more exemptions. Q: What is real estate withholding? A: Real estate withholding is a prepayment Prepayment 1. The payment of a debt obligation prior to its due date. 2. The excess payment over a scheduled debt repayment amount. Notes: 1. Examples include deferred expenses such as rent and early loan repayments. 2. of state income taxes for sellers of California real estate. Q: Who is subject to withholding? A: For sales closing on or after Jan. 1, all individuals who sell California real property and do not qualify for an exemption are subject to withholding. Non-individual sellers with a last known street address outside of California who do not qualify for an exemption remain subject to withholding. Q: Who are individuals? What are non-individuals? A: Individuals are human beings. Non-individuals are entities, other than individuals, such as corporations, estates, partnerships and trusts. Exceptions include revocable rev·o·ca·ble also re·vok·a·ble adj. That can be revoked: a revocable order; a revocable vote. Adj. 1. (grantor An individual who conveys or transfers ownership of property. In real property law, an individual who sells land is known as the grantor. grantor n. ) trusts, which are not considered to be entities for taxable purposes. So, if the property is held in the name of a grantor trust Grantor trust A mechanism of issuing MBS wherein the mortgages' collateral is deposited with a trustee under a custodial or trust agreement. , the seller is considered to be the grantor, who is frequently an individual. Q: Is the trustee or the trust considered the seller? A: If the trust is irrevocable Unable to cancel or recall; that which is unalterable or irreversible. IRREVOCABLE. That which cannot be revoked. 2. A will may at all times be revoked by the same person who made it, he having a disposing mind; but the moment the testator is , then the trust is the seller and falls under the requirements for non-individuals. If the trust is revocable, then the seller is the grantor and would usually fall under the requirement for individuals. Q: What are withholding exemptions for individual sellers? A: * Total sales price does not exceed $100,000; * Property is the seller's principal residence (IRC (Internet Relay Chat) Computer conferencing on the Internet. There are hundreds of IRC channels on numerous subjects that are hosted on IRC servers around the world. After joining a channel, your messages are broadcast to everyone listening to that channel. Sect. 121); * Sales resulting in a loss for California tax purposes; * Like-kind exchanges, with the exception of boot (IRC Sect. 1031); * Involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal. INVOLUNTARY. conversions (IRC Sect. 1033); or * Certain foreclosures. Sellers meeting one of these exemptions must sign a written certification (Form 593-C) to be exempt from withholding. Q: What are exemptions for non-individual sellers? A: * Corporations with a permanent place of business in California; * Partnerships or LLCs; * Tax-exempt entities, insurance companies, IRAs or qualified pension plans; * Irrevocable trusts Irrevocable Trust A trust that, once its setup, cannot be changed at all. Notes: This is to prevent fraudulent activities. See also: Exemption Trust, Trust, Unit Trust Irrevocable trust A trust that is unable to be amended, altered, or revoked. with a California trustee; * Estates with a California decedent An individual who has died. The term literally means "one who is dying," but it is commonly used in the law to denote one who has died, particularly someone who has recently passed away. ; or * Banks or banks acting as a fiduciary for a trust. Sellers meeting any of these exemptions must sign a different form (Form 593-W) to certify cer·ti·fy v. cer·ti·fied, cer·ti·fy·ing, cer·ti·fies v.tr. 1. a. To confirm formally as true, accurate, or genuine. b. that they are exempt from withholding. Q: Is there still a waiver process for individuals? A: No, but many of the reasons for which waivers were previously granted are now certifiable cer·ti·fi·a·ble adj. 1. That can or must be certified. Used of infectious, industrial, and other diseases that are required by law to be reported to health authorities. 2. exemptions. Q: Must the full 3 1/3 percent of the total sales price be withheld on installment sales Installment sale The sale of an asset in exchange for a specified series of payments (the installments). installment sale A sale in which the buyer is scheduled to make a series of payments over a period of time. ? A: Yes. However, withholding on the full sales price can be deferred if the buyer agrees to withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. 3 1/3 percent of the down payment and 3 1/3 percent of each payment thereafter. The buyer must complete and sign Form 593-I, Real Estate Withholding Installment Sales Agreement, and attach it to Form 597 with the down payment withholding. Q: When there are multiple sellers, how much is withheld from each? A: The total withholding is calculated on the total sale price and then allocated to each seller in proportion to his or her ownership interest. Q: When sellers certify that they meet a withholding exemption, should the information be sent to the FTB for review and approval? A: No. The withholding exemption certificate (Form 593-C for individuals; Form 593-W, Part I for non-individuals) should only be sent to the FTB when it requests the form. The escrow escrow Instrument, such as a deed, money, or property, that constitutes evidence of obligations between two or more parties and is held by a third party. It is delivered by the third party only upon fulfillment of some condition. office must keep these forms in their files. Q: Is there still a waiver process for non-individuals? A: Yes. However, requests for waivers or reduced withholding must be made using the new Form 593-W, Real Estate Withholding Exemption Certificate & Waiver Request for Non-Individual Sellers. Q: Will the procedures change for paying and reporting the withholding? A: Not for 2003. However, the FTB is exploring ways to streamline the payment and reporting processes for 2004. Q: Has the due date for Form 597 and payment of withholding changed? A: No. The due date remains the 20th day of the month following the month that the title is transferred. Q: Will interest be assessed on late payments of withholding? A: Yes. The interest is computed from the due date of the withholding payment to the date payment is received. Q: Who is responsible for withholding? A: The buyer or other transferee is responsible for withholding, completing Form 597, providing two copies of Form 597 to the seller, and providing one copy of Form 597 to the FTB along with the withholding payment by the due date. However, buyers normally delegate these responsibilities to the escrow company. Q: What is the escrow company required to do? A: The escrow company is required to notify buyers in writing of their withholding obligation. When the buyer directs the escrow company to withhold the amount, or when the escrow company has assumed responsibility to withhold, it must withhold and complete Form 597, provide two copies of Form 597 to the seller, and provide one copy of Form 597 to the FTB along with the withholding payment by the due date. Q: What is the penalty for failing to withhold? A: $500 or 10 percent of the withholding amount, whichever is greater. Q: What is the penalty if the escrow person fails to notify the buyer in writing of the withholding requirements? A: $500 or 10 percent of the withholding amount, whichever is greater. Q: What is the penalty if the seller signs a false exemption certificate? A: $1,000 or 20 percent of the amount required to be withheld, whichever is greater. Reprinted with permission from the Franchise Tax Board. For a copy of the new law, visit www.leginfo.ca.gov/bilinfo.html. For more in formation, go to www.ftb.ca.gov or call (888) 792-4900. |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion