If you live outside California and a property manager collects your California rent, the manager generally must withhold 7% of the rent it pays over to you and send it to the Franchise Tax Board (FTB), under Revenue and Taxation Code (R&TC) § 18662 and FTB Publication 1017. Withholding is optional until payments to you pass $1,500 in a calendar year, and the manager subtracts its management fee before figuring the 7%. The amount withheld is a credit toward your California tax, not the tax itself: if you have a California filing requirement, you report the rent on Form 540NR.

The short version

  • Rent from California real property is California-source income for a nonresident, whether or not anything is withheld.
  • Tenants who pay a nonresident owner directly are not required to withhold. Payments from a property management company are subject to withholding.
  • Withholding is at the manager's discretion until payments exceed $1,500 in a calendar year. After that it is required, with no catch-up on earlier payments.
  • The management fee comes off first, and 7% applies to the rest.
  • The manager reports on Form 592, pays with Form 592-V, and sends you Form 592-B by January 31 of the next year.
  • Form 590 is for California residents. A nonresident who wants withholding stopped asks the FTB for a waiver on Form 588.

Who has to withhold, and who does not

R&TC § 18662 lets the FTB require withholding by people who control or pay certain kinds of income, and rent is on the list. Publication 1017 (rev. 02/2026) applies that to residential rentals in two parts:

  • Tenants paying you directly. "Tenants of residential property are not required to withhold on payments made directly to nonresident owners."
  • Property managers. Payments from property management companies are subject to withholding. The Form 590 instructions describe the covered payment as rent paid to nonresidents "in the course of the withholding agent's business."

Either way, the income is taxable. Publication 1017 says rent from California real property "is California source income and is subject to California tax," even where no withholding is required. Under R&TC § 17951(a), a nonresident's California gross income includes only income from California sources, which include California rents.

A manager that fails to withhold may be personally liable for the tax, plus interest and penalties, unless the failure was due to reasonable cause (2025 Form 592 instructions). That is one reason a manager may ask you to document your residency.

How the 7% is figured

The calculation follows a fixed order:

  1. Start with the rent the manager collected for the period.
  2. Subtract the management fee. A California property manager may deduct its fee before computing the withholding.
  3. Apply 7% to what is left.

Publication 1017 (Q75) gives its own example: a manager receives $4,000 for a quarter, deducts its $250 fee to leave $3,750, and withholds 7% of that, or $262.

The $1,500 threshold. "Withholding is at the discretion of the withholding agent until payments exceed $1,500 during a calendar year. Once the total payments exceeds $1,500, the withholding agent is required to withhold." The manager does not have to go back and withhold on the earlier payments. The threshold resets each calendar year.

The forms and the calendar

FormWho uses itWhat it does
Form 592The managerReports income and withholding for each payee
Form 592-VThe managerPayment voucher sent with the withholding
Form 592-BThe manager, to youShows the income subject to withholding and the tax withheld; not filed with the FTB by the manager
Form 590A California resident payeeCertifies an exemption from nonresident withholding
Form 588A nonresident payeeRequests a waiver of withholding
Form 540NRYouYour nonresident return, where you claim the credit

The manager sends the withholding on the same four dates as individual estimated tax:

Payments madeDue
January 1 to March 31April 15
April 1 to May 31June 15
June 1 to August 31September 15
September 1 to December 31January 15 of the next year

Weekend or holiday dates move to the next business day; for 2025 the Form 592 instructions list April 15, June 16 and September 15, 2025, and January 15, 2026. The "20th of the following month" rule applies to sale withholding on Form 593, not to rent.

Form 592-B must be mailed to you by January 31 of the following year, unless the FTB grants an extension.

Form 590 or Form 588: which one applies to you

Form 590 (Withholding Exemption Certificate) is how a payee certifies an exemption. A California resident gives a signed Form 590 to the manager before payment. It includes the payee's taxpayer identification number, does not need to be renewed each year, stays valid until the payee's status changes, and is not sent to the FTB. The manager keeps it for at least five years after the last payment. A manager can generally rely on a California street address as a sign of residency unless it has reason to think the address is only a forwarding address. A nonresident cannot use Form 590 to avoid rent withholding.

Form 588 (Nonresident Withholding Waiver Request) is the nonresident route. Under Publication 1017, the FTB may grant a waiver if you have California returns on file for the two most recent taxable years in which you had a filing requirement and you are current on any outstanding tax obligations, or if you are making current-year estimated payments. Key points:

  • Submit the request at least 21 business days before a payment.
  • Waivers are generally granted for fixed periods, with a maximum of two years, and managers must honor them.
  • A waiver does not change whether the income is taxable or whether you must file a return.
  • If you own through a single-member LLC, the 588 instructions say the LLC is not disregarded on that form: enter the LLC's name, and list the member separately if the waiver is for the member.

Filing Form 540NR and claiming the credit

"Nonresidents of California who received California sourced income in 2025 ... file Form 540NR," according to the 2025 540NR booklet. A few points from that booklet for 2025 returns:

  • Your income from everywhere sets the rate, but only California-source income is taxed at that effective rate.
  • The filing test uses income from all sources. For 2025, the gross income test for a single filer under 65 with no dependents is $22,941, and for married or RDP joint filers both under 65 with no dependents it is $45,887. A separate AGI test for a single filer under 65 with no dependents is $18,353. If you have a 2025 tax liability, you must file.
  • The credit goes on line 83. Enter the California tax withheld from your Forms 592-B (and any Form 593) on line 83 of the 2025 Form 540NR, and attach a copy of each 592-B.

Military owners are not carved out. FTB Publication 1032 (2025) says a nonresident servicemember's California rental income is California-source and taxable, and it does not exempt military owners from rent withholding. See California taxes for military homeowners.

What to do next

  1. Tell your manager your residency status in writing. If you are a California resident, give the manager a signed Form 590 with your taxpayer identification number.
  2. If you are a nonresident and current on California filings, ask a CPA whether a Form 588 waiver makes sense, and send it at least 21 business days before the payment it should cover.
  3. Match each Form 592-B to your owner statements and keep the records.
  4. File Form 540NR and claim the withholding on line 83 (2025 form), with the 592-B attached.
  5. Check the full picture with the rental cash flow calculator, and ask your CPA how the amount withheld compares with your expected California tax.
  6. Planning a sale? Sale withholding works differently; see California real estate withholding when you sell.

See also California vs. federal tax rules, holding a California rental in an LLC and, for Coronado owners, taxes on a Coronado rental.

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

Frequently asked questions

Does my tenant have to withhold if I collect the rent myself?

No. Publication 1017 says tenants of residential property are not required to withhold on payments made directly to nonresident owners. The rent is still California-source income, so if you have a California filing requirement you report it on Form 540NR whether or not anything was withheld.

Can I stop the withholding by giving my manager Form 590?

Only if you are a California resident. Form 590 certifies an exemption, and a nonresident owner cannot use it to avoid rent withholding. A nonresident's route is a waiver request on Form 588, which the FTB may grant if your California returns for the two most recent required years are on file and your account is current.

Is the 7% my final California tax on the rent?

No. The withholding is a credit on your Form 540NR. Your actual tax depends on your California-source income and an effective rate set by your income from all sources, so it can be more or less than what was withheld.

Does the $1,500 rule mean my first $1,500 of rent is tax free?

No. The $1,500 figure only controls when withholding becomes mandatory: until payments exceed $1,500 in a calendar year, withholding is up to the manager. All of the rent remains taxable income.

When should I receive Form 592-B?

The manager must mail it by January 31 of the year after the payments, unless the FTB has granted an extension. The manager does not file the 592-B with the FTB; you attach a copy to your Form 540NR when you claim the credit.

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

Verified October 19, 2026.

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