California Real Estate Withholding When You Sell a Rental (Form 593)

When you sell California real property for more than $100,000, the escrow person generally must withhold 3 1/3% of the sales price for the Franchise Tax Board, or, if you elect, an amount based on your estimated gain, under R&TC § 18662(e). To avoid or reduce withholding, you submit Form 593, certifying an exemption or electing the alternative amount, before escrow closes. A home whose last use was as a rental does not qualify for the "last used as principal residence" exemption, and any amount withheld is a credit you claim on your California return.

The short version

• Withholding applies when the sales price exceeds $100,000. It is 3 1/3% of the sales price, or an elected alternative amount based on gain.
• Sales price includes cash, the fair market value of other property, and liabilities the buyer assumes or that the property is subject to.
• Exemptions include a principal residence under § 121, a § 1031 exchange (for the deferred gain), and a loss or zero gain for California purposes.
• If the last use of the property was as a rental, you do not qualify for the "last used as principal residence" exemption.
• Submit Form 593 before closing. After closing, withheld money comes back only as a credit on your return.
• Withholding is not the tax. You still file and pay any tax due on the sale.

How much is withheld

The alternative rates on the 2025 form for other sellers are 12.3% for a non-California partnership, 8.84% for a corporation, 13.8% for an S corporation and 12.3% for trusts. The alternative amount is certified under penalty of perjury.

"Sales price" is broader than the cash you receive. It includes "the outstanding amount of any liability assumed by the transferee or to which the California real property interest is subject" (§ 18662(e)(8)).

Exemptions you can certify on Form 593

R&TC § 18662(e)(3)(D) and the 2025 Form 593 instructions list several exemptions. The ones that come up most for rental owners:

The loss or zero gain exemption

The 2025 instructions say: "You have a loss or zero gain for California income tax purposes when the amount realized is less than or equal to your adjusted basis. You must complete Part VI and have a loss or zero gain on line 28 to certify that the transaction is fully exempt from withholding." Three cautions apply:

• The test uses your California basis, which can differ from your federal basis because California never allowed bonus depreciation and caps § 179 expensing. See selling a rental property.
• "You may not certify that you have a net loss or zero gain just because you do not receive any proceeds from the sale or because you feel you are selling the property for less than what it is worth."
• "A loss or zero gain can only be claimed on Form 593 if the taxpayer has a tax identification number."

Exchanges

In a deferred § 1031 exchange, the intermediary or accommodator is among the parties required to withhold. If the exchange fails the 45 or 180 day rules, the intermediary must notify the FTB in writing within 10 days and remit withholding on undisbursed funds. See 1031 exchange basics.

Timing: before and after escrow closes

1. Before closing. "The seller/transferor must submit Form 593 before the close of the real estate transaction to prevent withholding."
2. At closing. Escrow withholds the required amount.
3. By the 20th of the next month. The escrow person sends Form 593 and the withholding to the FTB by the 20th day of the month following the month escrow closes.
4. Your copy. You receive a copy within 20 days after the end of the month of closing.
5. After closing. Withheld amounts "may be recovered only by claiming the withholding as a credit on the appropriate year's tax return."

If the escrow person helps with the withholding, it may not charge more than $45 for that assistance (§ 18662(e)(7)).

Special cases

• Single-member LLC. If a disregarded single-member LLC sells, "that single member is considered the seller/transferor" for withholding.
• Installment sale. Withholding applies to the principal portion of each installment.

Claiming the credit

"To claim the withholding credit you must file a California tax return." Enter the amount from Form 593, line 37, on your return, and "Attach a copy of Form(s) 593 to the lower front of your California tax return."

The 2025 instructions add: "Qualifying for an exemption from withholding or being withheld upon does not relieve you of your obligation to file a California income tax return and pay any tax due on the sale of California real estate."

If you live outside California

The gain on selling California real property is California-source income, so moving away does not remove California's tax. Nonresidents who received California-source income in 2025 file Form 540NR. The tax is figured on your California income at a rate set by your income from everywhere. If more was withheld than you owe, the return is how you get it back. FTB Pub 1032 notes that military members can file to get a refund of Form 593 withholding, and it does not create a special military exemption from sale withholding. See California taxes for military homeowners. Out-of-state owners who receive rent face a separate 7% withholding; see nonresident rent withholding.

What to do next

1. Ask your tax professional which Form 593 exemption, if any, fits your sale, and whether the alternative calculation makes sense.
2. Gather your California depreciation schedules (FTB 3885A) and improvement records so your California adjusted basis can be figured.
3. Make sure you have a taxpayer identification number on the form.
4. Give the completed Form 593 to your escrow officer well before closing.
5. Keep your copy of Form 593 and attach it to the California return for the year of sale.
6. If the property was once your home, check the home sale exclusion timeline and read selling a former home you rented out.

McKee Properties manages rentals from its Coronado office; contact us with questions about your property.

Frequently asked questions

Does California withhold tax only from out-of-state sellers?

No. Real estate withholding applies to sellers generally, residents and nonresidents alike, whenever the sales price exceeds $100,000 and no exemption is certified. Nonresidents still have to file Form 540NR because the gain is California-source income.

My rental used to be my home. Am I exempt?

Not under the "last used as principal residence" exemption, because Form 593 says you do not qualify if the last use was as a rental. You may still qualify if the home is your principal residence under § 121, or under another exemption such as a loss or zero gain for California purposes. Ask your tax professional which applies.

Can I get the withholding back if my gain is small?

Yes, through your return. If you did not certify an exemption or elect the alternative amount before closing, the money withheld can be recovered only as a credit on your California return for the year of sale. If the withholding is more than your California tax, filing is how you get the difference refunded.

Can I claim a loss because I am not getting any cash at closing?

No. The Form 593 instructions say you may not certify a loss or zero gain just because you receive no proceeds or feel you are selling for less than the property is worth. The test is whether the amount realized is less than or equal to your adjusted basis for California purposes.

What if I sell through my single-member LLC?

If the LLC is disregarded, the single member is treated as the seller, and title is treated as being in that member's name for withholding purposes.

This is general information, not tax or legal advice. Tax rules change and depend on your facts; talk to a CPA or enrolled agent before acting.

Sources

• R&TC § 18662 (opens in a new tab)
• 2025 Form 593 instructions (opens in a new tab)
• 2025 Form 540NR booklet (opens in a new tab)
• FTB, Part-year resident and nonresident (opens in a new tab)
• FTB Publication 1032 (2025) (opens in a new tab)
• FTB Publication 1001 (2025) (opens in a new tab)

Verified October 19, 2026.