California Form 593, the Real Estate Withholding Statement, is the document a seller and escrow company use at closing to either claim an exemption from California’s real estate withholding or to set the amount held back from the sale proceeds and sent to the Franchise Tax Board as a prepayment of the seller’s state income tax. Nearly every sale of California real property runs through this form, and the choices made on it decide whether thousands of dollars leave escrow or stay with the seller.
What Form 593 Does and Who Fills It Out
Revenue and Taxation Code Section 18662 requires buyers and escrow agents to hold back a share of the sale price on any transfer of California real property, unless the seller qualifies for an exemption.1California Legislative Information. California Revenue and Taxation Code 18662 The escrow company almost always serves as the withholding agent, called the REEP (real estate escrow person). The REEP is responsible for getting Form 593 completed, holding back any required funds before title transfers, and sending both the form and the money to the FTB.2Legal Information Institute. California Code of Regulations Title 18 18662-1 – Withholding – Generally
The seller’s job is to fill out Form 593 before closing with correct identifying information and either certify an exemption in Part III, elect the alternative calculation in Part VI, or let the default withholding apply. Each seller signs under penalty of perjury.
The Default Withholding Rate
If no exemption applies and the seller doesn’t elect otherwise, the withholding is 3⅓ percent of the total sales price.3Legal Information Institute. California Code of Regulations Title 18 18662-3 – Real Estate Withholding That percentage runs against the gross price, not the net after commissions, loan payoffs, or closing costs. On a $750,000 sale, roughly $24,975 leaves escrow for the FTB. If the seller doesn’t submit a completed Form 593 before closing, the escrow company withholds at this default rate automatically.
Exemptions That Eliminate Withholding
Most Form 593s are filed to claim an exemption rather than to calculate a payment. Exemptions appear in Part III, and each seller must provide a Social Security number or taxpayer identification number for any exemption to be valid.
Principal Residence
The most common exemption covers the sale of a primary home. To qualify, you must have owned and lived in the property as your main residence for at least two of the five years before the sale date. The two years don’t need to be consecutive, but they must add up to 24 months of both ownership and use within that five-year window.4Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement You also need to meet the federal gain-exclusion requirements under Internal Revenue Code Section 121, which excludes up to $250,000 of profit for individuals and $500,000 for married couples filing jointly.5Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
If you recently converted a rental into your primary home, watch the timeline carefully. The two-year use requirement is where most principal residence claims fall apart in audits.
Loss or Zero Gain
A seller breaking even or selling at a loss can check Line 3 in Part III, but the box alone isn’t enough. You must also complete Part VI, which walks through the gain computation: sales price minus adjusted basis minus estimated selling expenses.6Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement – Section: Line 3 – Loss or Zero Gain Estimates are allowed in Part VI, but they can’t manufacture a loss where there’s actually a gain. If the FTB later finds you had a taxable gain, you owe the tax plus interest and penalties.
Low Sales Price
No withholding is required when the total sales price is $100,000 or less. This is a hard cutoff. A sale at $100,001 gets no benefit and needs either another exemption or withholding.
Foreclosure
Properties acquired through foreclosure are exempt, including sales under a power of sale in a deed of trust, judicial foreclosure decrees, and deeds in lieu of foreclosure.3Legal Information Institute. California Code of Regulations Title 18 18662-3 – Real Estate Withholding Short sales do not automatically qualify. A seller selling for less than the mortgage balance still needs a separate exemption, often the loss or zero gain certification.
Involuntary Conversion
If the property was taken by eminent domain, destroyed, or condemned, Part III Line 4 provides an exemption, but only if you intend to buy replacement property similar in use and qualify for nonrecognition of gain under IRC Section 1033.7Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement – Section: Line 4 Keep the proceeds without replacing the property and the gain becomes taxable.
Tax-Exempt Entities
Organizations recognized as tax-exempt under both federal and California law claim the exemption by providing their federal employer identification number and certifying their status.
Entities, Trusts, and Co-Owners
Business entities are treated by their California presence, not by their label. A corporation or LLC taxed as a corporation is exempt if it’s either organized under California law or qualified to do business with the Secretary of State.1California Legislative Information. California Revenue and Taxation Code 18662 Partnerships and LLCs taxed as partnerships qualify on the same basis. An out-of-state entity that isn’t registered here and keeps no staffed California office will face withholding at closing.
A single-member LLC that’s disregarded for tax purposes gets no entity exemption. The FTB looks through to the owner, so Form 593 is completed with the owner’s information, with a note that it’s being filed for the single member, and only the owner’s exemptions apply.8Franchise Tax Board. 2024 Instructions for Form 593 Real Estate Withholding Statement – Section: Line 7
For a grantor trust, use the grantor’s personal information on the form; the grantor reports the sale and claims the credit on their own return.9Franchise Tax Board. Real Estate Withholding A nongrantor trust is a separate tax entity. Use the trust’s legal name and federal employer identification number, not the trustee’s personal details. The alternative withholding rate for a trust is 12.3 percent of estimated gain.
Each seller in a multi-owner transaction gets a separate Form 593. Three siblings selling a jointly owned house produce three forms, each reflecting that owner’s share. Married couples or registered domestic partners filing jointly can share one form, unless their ownership interests are unequal; in that case, separate forms are needed to show each spouse’s correct share.10Franchise Tax Board. 2024 Instructions for Form 593 Real Estate Withholding Statement
Two Ways to Calculate the Amount
When no exemption applies, Part II of Form 593 documents how much is withheld. There are two methods, and the choice can mean thousands of dollars.
Sales Price Method
Multiply the total sales price by 3⅓ percent. On an $800,000 sale, that’s $26,640. The escrow company needs no information about the seller’s basis or expenses.11Franchise Tax Board. 2026 Instructions for Form 593 Real Estate Withholding Statement The method is simple and tends to over-withhold, sometimes badly, because it ignores what the seller paid for the property.
Alternative Withholding Calculation
The alternative method bases the withholding on estimated gain rather than gross price. Part VI steps through sales price minus adjusted basis minus estimated selling expenses, which produces the estimated gain. That gain is then multiplied by the tax rate for the seller’s entity type.12Franchise Tax Board. 2026 Form 593 Real Estate Withholding Statement
The 2026 rates are:
- Individual: 12.3%
- Corporation: 8.84%
- Bank or financial corporation: 10.84%
- S corporation: 13.8%
- Financial S corporation: 15.8%
- Trust: 12.3%
- Non-California partnership: 12.3%
Take an individual seller at $800,000 with a $700,000 adjusted basis and $40,000 in expenses. Estimated gain is $60,000. At 12.3 percent, the withholding drops to $7,380 rather than $26,640 under the sales price method. The seller must complete and sign Form 593 before closing for the escrow company to use the lower amount.3Legal Information Institute. California Code of Regulations Title 18 18662-3 – Real Estate Withholding
1031 Exchanges and Installment Sales
A simultaneous like-kind exchange under IRC Section 1031 is fully exempt from withholding as long as the seller receives no more than $1,500 in cash or other non-like-kind property (boot). If the boot exceeds $1,500, withholding kicks in.13Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement – Section: Part IV, Line 10 Deferred exchanges use the same $1,500 threshold, but the qualified intermediary handles the withholding obligation. If a deferred exchange falls through and no replacement property closes, the intermediary withholds 3⅓ percent of the full sales price.
When a completed exchange involves boot above the threshold, the sales price method applies to the boot amount only, not the full sales price. The seller can also elect the alternative calculation on the recognized gain, as long as that gain doesn’t exceed the boot received.
Installment sales spread withholding across payments rather than taking it all at closing. The escrow company withholds 3⅓ percent of the down payment at closing. For each later payment, the buyer withholds 3⅓ percent of the principal portion (not interest) and remits it with a new Form 593 and Form 593-V.14Franchise Tax Board. 2022 Instructions for Form 593 Real Estate Withholding Statement Under the alternative calculation, you first divide estimated gain by selling price to get an installment sale withholding percentage, apply that to each payment, then multiply by the applicable tax rate. The buyer must submit a copy of the promissory note with the initial Form 593, though later filings don’t need the note or the seller’s signature.
If the Seller Is a Foreign Person
Foreign sellers face a separate federal layer under the Foreign Investment in Real Property Tax Act. The buyer generally must withhold 15 percent of the amount realized and remit it to the IRS on Form 8288.15Internal Revenue Service. FIRPTA Withholding California’s 3⅓ percent withholding applies on top of the federal amount, and both appear on the settlement statement. A foreign seller without a Social Security number uses an IRS-issued Individual Taxpayer Identification Number on Form 593.
When Form 593 and the Money Are Due
The escrow company sends the original Form 593, a completed Form 593-V payment voucher, and the withheld funds to the FTB by the 20th day of the calendar month following the month escrow closed.11Franchise Tax Board. 2026 Instructions for Form 593 Real Estate Withholding Statement An escrow that closes March 5 produces an April 20 deadline, not a deadline 20 days after closing. The seller receives a copy within the same timeframe. The remitter keeps a third copy for at least five years. Exempt transactions follow the same calendar: the seller gives the signed Form 593 to the escrow company before closing, and the escrow company forwards it by the 20th of the following month.
Claiming the Credit on Your Tax Return
The amount withheld isn’t lost money. It’s a credit against the California tax you actually owe on the gain. Report the sale on Schedule D and enter the withholding on the appropriate line of your California return. Residents use Form 540 and attach their copy of Form 593; nonresidents and part-year residents use Form 540NR.16Franchise Tax Board. 2025 Instructions for Form 540 California Resident Income Tax Return – Section: Line 73 If withholding exceeds the actual tax on the gain, the difference comes back as a refund, which happens often when the sales price method is used on a modest gain. Keep your copy of Form 593; without it, claiming the credit becomes difficult.
Fixing a Mistake After the Fact
Only the escrow company can file an amended Form 593. A seller who spots an error should contact the escrow company rather than filing anything directly with the FTB.11Franchise Tax Board. 2026 Instructions for Form 593 Real Estate Withholding Statement The amendment uses a new form for the same tax year, with the “Amended” box checked, the corrected information entered, and a letter attached explaining the changes. If the original used the wrong year’s form, the FTB asks callers to use its Withholding Services line at 888-792-4900 rather than attempting to fix it independently.
One hard limit: you can’t file an amended Form 593 to cancel withholding after escrow has closed. Once the money has been remitted, the only path to recover it is through the credit on your tax return.
Penalties for Getting It Wrong
Penalties fall on different parties for different failures, and the amounts increased for taxable years beginning on or after January 1, 2026.11Franchise Tax Board. 2026 Instructions for Form 593 Real Estate Withholding Statement
If the escrow company notifies the buyer of the withholding requirement and the buyer doesn’t withhold, the penalty is the greater of $500 or 10 percent of what should have been withheld.17Franchise Tax Board. FTB Pub 1024 Penalty Reference Chart If the escrow company fails to notify the buyer at all, the same penalty applies to the escrow company.
A seller who knowingly files a false exemption certification faces a penalty of the greater of $1,000 or 20 percent of the required withholding.18California Legislative Information. California Revenue and Taxation Code 18668 That sits on top of the tax and interest owed on the unreported gain.
Late filing of the information return itself scales with the delay: $60 if filed within 30 days, $130 if filed between 31 days and six months late, and $340 if filed more than six months late. Intentional disregard raises the penalty to the greater of $680 or 10 percent of the required withholding. Reasonable cause can waive these penalties except where disregard was intentional. The withholding agent also carries personal liability for any tax that should have been withheld, so the escrow company’s exposure extends well past the penalty amounts.