San Francisco Real Estate - Residential

Assembly Bill 2962 potentially good news for San Francisco real estate sellers

Previously, the seller of a property of a property in California was required to have 3.33% of the sales price withheld for income tax purposes. As you can imagine, with average home prices creeping toward the $1M mark, this involves a lot of money. In the past most sellers would swallow hard, pay the tax, then have their accountant get most of the money back at the end of the year when they file their taxes. Meanwhile the state government gets to use that money interest free!

With the passage of Assembly Bill 2962, the seller may elect to pay an alternative withholding which is calculated only on the capital gain. Here's what the California Association of Realtors is saying:

"Effective January 1, 2007, a seller required to have 3.33% of the sales price withheld for income tax purposes may elect an alternative withholding. The alternative withholding is an estimate of the seller's tax liability calculated by multiplying the recognized capital gain by the highest state tax rate for individual taxpayers (or the corporate tax rate for corporations), regardless of the taxpayer's actual tax bracket. Under existing California law, a buyer must withhold 3.33% of the sales price from the seller's proceeds unless an exemption applies, such as when the property is the seller's principal residence, the property is in a 1031 exchange, or the seller will not realize any capital gains. The new law applies to non-exempt sellers who may now elect to have less than 3.33% withheld. A seller opting for this tax alternative withholding must certify the amount to be withheld in writing under penalty of perjury. C.A.R.'s Standard Forms Advisory Committee is considering the impact this new rule will have, if any, on the 'Seller's Affidavit of Non-foreign Status and/or California Withholding Exemption' (Form AS). "

Assembly Bill No. 2962 may be read here in PDF format.

- Mick Orton

posted by SFResidence.com @ 8:14 AM