California Tax Withholding Requirements
Beginning January 1, 2010 property managers were required to withhold 7% of all income, if that income exceeds $1,500, on properties owned by a nonresident and to be sent to the nonresident property owner, unless the owner qualifies for a reduced or waived withholding.
California non resident owners include the following:
- Individuals who reside outside of California,
- Corporations, Partnerships and LLCs who do not have a permanent place of business in California or who are not qualified by the Secretary of State to do business in California, or
- Estates and trusts who are nonresidents of California.
People and entities exempt from withholding include the following:
- California residents,
- Corporations, Partnerships and LLCs qualified to business in California or who have a permanent place of business in California,
- Estates where the deceased was a California resident at the time of death,
- Nonresidents when the payments do not exceed $1,500 in a calendar year,
- Tax exempt organizations,
- California nongrantor trusts,
- A nonresident owner who has received either a Waiver or Reduced Withholding Exemption from the FTB.
NOTE: One fairly simple method for nonresident owners to be exempt from withholding is for them to form a California Corporation, Partnership, or LLC, or to have their foreign (out-of-state) Corporation, Partnership, or LLC qualified to do business in California with the Secretary of State. Depending on the income generated by the rental property, the cost of forming and maintaining such an entity may be justified to avoid withholding.
Coronado Island Realty will work with you to help you determine whether you are eligible for an exemption, waiver, or reduced withholding.
At the time of withholding, we will withhold 7% of all the GROSS payments to the owner (if the payments exceed $1,500). Coronado Island Realty can deduct direct property management expenses (property management fee) from the payment before calculating the 7% withholding. If the owner wishes to reduce the withholding due to other property expenses they will need to submit FTB Form 589.
After making the payment to the nonresident owner Coronado Island Realty files the Resident and Nonresident Withholding Statement. This form is filed quarterly with the forwarding of the withheld amounts to the FTB. By January 31 of the following calendar year, the property manager sends to the nonresident property owner a completed Resident and Nonresident Withholding Tax Statement. The property owner then files a claim for the withholding when filing their California tax return.
This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.’s legal products and services, please visit car.org .
Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.’s Member Legal Hotline at (213) 739-8282, Monday through Friday, 9 a.m. to 6 p.m, and Saturday, 10 a.m. to 2 p.m. C.A.R. members who are broker-owners, office managers or Designated REALTORS may contact the Member Legal Hotline at (213) 739-8350 to receive expedited service. Members may also fax or e-mail inquiries to the Member Legal Hotline at (213) 480-7724 or email@example.com. Written correspondence should be addressed to:
California Association of REALTORS®
Member Legal Services
525 South Virgil Ave.
Los Angeles, CA 90020
The information contained herein is believed accurate as of Jan. 6, 2011. It is intended to provide general answers to general questions and is not intended as a substitute for individual legal advice. Advice in specific situations may differ depending upon a wide variety of factors. Therefore, readers with specific legal questions should seek the advice of an attorney. Revised by Sonia M. Younglove, Esq.
Copyright© 2011 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R.Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.
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