On September 22, 2006, the governor signed AB 2962. This new law amends Revenue and Taxation Code Sections 18662 and 18668, making changes to real estate withholding requirements for all transactions closing on or after January 1, 2007. We commonly refer to these withholding requirements as “CAL FIRPTA”.

Previously, where withholding was required under CAL FIRPTA, a seller had to withhold 3 1/3% of the property’s gross sale price. Now, for all transactions closing on or after January 1, 2007, a seller may choose between the original withholding method, or elect an alternate withholding amount based on seller’s estimated gain. The alternate withholding amount will be based on the calculation of applying the maximum tax rate to that individual or entity, as seller, to the seller’s estimated gain. The maximum tax rates are:

• Individuals: 9.3%
• Corporations: 8.84%
• Banks and financial corporations: 10.84%
• S corporations: 1.5%
• Financial S corporations: 3.5%

Sellers electing the new alternate withholding amount based on their gain will be required to certify the amount in writing, under penalty of perjury. The new form for calculating a Sellers gain is entitled Form 593E, Real Estate Withholding – Computation of Estimated Gain or Loss.

Read the Cal Firpta 2007 article here