California’s 3 1/3% withholding when you sell (Form 593)

01What is California’s 3 1/3% real estate withholding?

California real estate withholding is a prepayment of the seller’s state income tax, collected at closing. Unless an exemption applies, escrow withholds 3 1/3% of the sales price, multiplied by the seller’s ownership share, and sends it to the Franchise Tax Board (FTB) with Form 593, as Revenue and Taxation Code §18662 requires^1,2.

The FTB calls the closing party the real estate escrow person: the escrow company, title company, attorney, qualified intermediary or anyone else who receives and disburses the sale money. That person must notify the buyer of the withholding requirement, and the remitter, usually escrow, files the form and sends the payment².

The tax itself is settled on the seller’s California return for the year of sale, where the withholding counts as a payment. The FTB says qualifying for an exemption from withholding does not relieve a seller of filing that return and paying any tax due on the sale².

02Who is exempt from Form 593 withholding?

Withholding is not required when the sales price is $100,000 or less, when the property is in foreclosure, when the seller is a bank acting as a trustee other than under a deed of trust, or when the seller certifies an exemption on Form 593². The exemptions that matter most to homeowners are in Part III of the form, and certifying any one of them means nothing is withheld¹.

• Principal residence. The home qualifies under Internal Revenue Code §121, which generally means you owned it and lived in it as your main home for at least two of the five years ending on the sale date. Exceptions to the two-year rule, for a job change, health or unforeseen circumstances, follow IRS Publication 523^2,3.
• Last used as your principal residence. Your last use of the home was as your main home, without regard to the two-year period. A home last used as a vacation home, second home or rental does not qualify².
• Loss or zero gain. The amount realized is at or below your adjusted basis, figured on Part VI of the form. Receiving no cash at closing, or selling for less than you think the home is worth, does not count².
• Involuntary conversion. The property is transferred because it was seized, destroyed or condemned, or threatened with it, and you intend to replace it with similar property².
• Seller type. Certain corporations, partnerships and LLCs qualified in California, tax-exempt organizations, insurance companies, IRAs, qualified pension plans and charitable remainder trusts^1,2.

Two other cases change the amount. In a §1031 like-kind exchange, nothing is withheld at the initial transfer unless the seller receives more than $1,500 in cash or other property outside the exchange; if the exchange fails, the intermediary withholds 3 1/3% of the sales price. On an installment sale, escrow withholds 3 1/3% of the down payment, and the buyer withholds on the principal of each later payment².

The form has to reach escrow before closing. The seller signs Form 593 under penalty of perjury, and spouses or registered domestic partners who will file jointly go on one form. Knowingly signing a false certificate to avoid withholding carries a penalty of $1,000 or 20% of the required withholding, whichever is greater².

03Can you withhold on the gain instead of the price?

Yes. A seller with no exemption can elect the alternative withholding calculation, which multiplies the estimated gain by a tax rate set for each type of seller. For individuals and for trusts, grantor or nongrantor, the FTB’s 2026 Form 593 instructions print a rate of 12.3%².

The gain is estimated in Part VI of Form 593. Start with the selling price and subtract selling expenses, such as commissions, advertising and legal fees, to get the amount realized. Then subtract the adjusted basis, which is the purchase price plus improvements and other increases, less depreciation and other decreases².

Illustration with hypothetical figures, not from any sale: an individual sells a former rental for $2,000,000, and no exemption applies. The sales price method withholds $66,600 ($2,000,000 × .0333). If the estimated gain is $300,000, the alternative method withholds $36,900 ($300,000 × 12.3%)².

The election changes only the amount prepaid at closing, and the tax is still figured on the return. Estimates are allowed, but they must not show a loss when there is a gain, and the seller should keep the signed form for five years to document the calculation².

04How does withholding work when a trust or estate sells?

The decedent’s use of the home counts. When a decedent’s estate or trust sells, the principal-residence exemption applies if the decedent met the two-of-five-year test, and the last-use exemption applies if the home was last used as the decedent’s principal residence, without regard to the two-year period^1,2.

A house last used as a rental or second home can still qualify through the loss-or-zero-gain exemption. Inherited property usually takes a basis equal to its fair market value at the date of death, which the FTB says can come from the probate documents or, without probate, a date-of-death appraisal². A sale near that value, after selling costs, can show a loss or zero gain.

• Grantor trust. The trust is disregarded for tax purposes, so the form lists the grantor’s name and Social Security number, and the grantor claims the credit on a personal return².
• Grantor trust that became irrevocable at the grantor’s death. The form lists the trust’s name and its federal employer identification number (FEIN), without the decedent’s or the trustee’s name².
• Nongrantor trust. The form lists the trust’s own name and FEIN².

Apply for the trust’s FEIN early. A seller can certify a loss or zero gain only with a tax identification number, and withholding still applies when no number is provided². The wider process is covered in How to Sell an Inherited House in Orange County and Selling a House as a Successor Trustee in California.

05How do you get the withheld money back?

You claim it as a credit on your California income tax return for the year of the sale. Escrow sends the FTB the form and payment by the 20th day of the month after closing and gives you a copy within 20 days after that month ends. Enter the amount from line 37 of your Form 593 as withholding on your return, and attach a copy².

• Form 540, for California residents. On the 2025 form, it is line 73, “Withholding (Form 592-B and/or Form 593)”^2,4.
• Form 540NR, for nonresidents and part-year residents, including sellers who leave California. On the 2025 form, it is line 83^2,5.
• Form 541, the fiduciary return, when an estate or a nongrantor trust is the seller².

That return is the only route once escrow closes. The FTB says withheld amounts may then be recovered only as a credit on the tax return, and an amended Form 593 cannot be filed to cancel withholding. If your filing status changed between closing and filing, call FTB Withholding Services and Compliance at 888-792-4900 before you file².

06Is Form 593 the same as FIRPTA withholding?

No. Form 593 is California’s withholding toward state income tax, and it applies to sellers of California real estate wherever they live. FIRPTA is a separate federal rule. When the seller is a foreign person, the buyer generally must withhold 15% of the amount realized for the IRS, and a buyer who fails to can be held liable for the tax⁶. A foreign seller of a California home can face both, so ask a CPA to check each one.