115. FIRPTA 3-1/3 PERCENT WITHHOLDING RULES CHANGE

After Jan. 1, 2003, the California Investment in Real Property Tax Act (CalFIRPTA) requires withholding of 3-1/3 percent of the sales price for residents as well as non-residents selling investment properties. While this new law does not impose new taxes or increase existing taxes it does accelerate the receipt of tax revenue (projected to be $225 million) to the state by way of withholding on the seller’s taxable gain on investment properties. This does not apply to the sale of principal residences or to1031 tax-deferred exchanges; there are other transfers not subject to the withholding requirements as well. Individual sellers can no longer apply for and receive a waiver from the Franchise Tax Board even if they can document that the tax owed is less than the 3-1/3 percent of the sales price withheld. Entities such as corporations, LLCs and trusts still can apply for and receive a waiver. This law (AB 2065) was enacted without having been available for examination in print; it was amended on the evening of Aug. 31, passed by the Legislature Sept. 1, and signed by the governor Sept. 5 along with the many
budget items. This was “eleventh hour” legislation amended, passed and signed by the Governor as part of the package of bills that ended the budget impasse. The legislature waived the rule requiring that a bill be in print before it can be acted on .C.A.R. will be releasing a revised standard form (AS) to reflect this new law next month. It should be noted that it is the escrow’s obligation, not the REALTOR’S), but many licensees routinely provide the C.A.R. form to their clients. In the interim, the current form AS with a revision date of June 2000 should be used for transactions closing before Dec. 31, 2002.

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