Dispositions of California real estate interests that occur on or after January 1, 2003 will be subject to withholding. As part of the budget solutions proposed by members of the California Legislature, Assembly Bill 2065 (for the complete bill text, see the link at the bottom of this bulletin), requires all real estate transferees (buyers) to withhold 3 1/3% of the sales price of specified California real property. The amount withheld shall be held in trust for the State of California according to the law. The sales price is defined to mean the cash paid, plus the fair market value of property transferred plus any liability assumed. It does not subtract any expenses of the sale.
The law sets forth a notice to be supplied by the escrow agent to the transferee with the escrow agent handling various certifications and, if necessary, the withholding and transmittal of funds to the Franchise Tax Board in the form and manner and at the time specified by the Franchise Tax Board.
The provisions in AB 2065 are patterned after Cal-FIRPTA (Foreign Investment in Real Property Tax Act) which became effective in 1988, which was in turn patterned after the federal law first adopted in 1980. Cal-FIRPTA currently relates only to withholding of real estate proceeds of foreign, non-resident aliens. The law amends CAL-FIRPTA to set up withholding requirements relating to three classes of transferors:
Under the new law, 3 1/3 of the sales price is required to be withheld unless:
An escrow agent would:
There are additional provisions to be aware of covered on the CLTA web site: www.clta.org.
Source: CLTA News Express, Bulletin 2002/03-24