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California · R&T Code §18662(e)California real estate withholding: 3⅓% of the price unless an exemption is certified

When California real property is sold, the buyer – in practice the escrow – must withhold 3⅓% of the sales price and send it to the Franchise Tax Board (Rev. & Tax. Code §18662(e)). It applies to individuals whether or not they are California residents, and to corporations and partnerships with no permanent place of business in California. The seller can instead elect withholding on the gain at the top tax rate, certified on the FTB's form. No withholding when the price is $100,000 or less, or when the seller certifies a principal residence under IRC §121, a net loss, a qualifying 1031 or 1033 exchange. On a $500,000 sale: $16,667.

Who withholds, how much and an example

  1. Who withholds

    The transferee – in practice the real estate escrow person – after written notice of the requirement (§18662(e)(2), (3)(B)).

  2. Standard amount

    3⅓% of the sales price (§18662(e)(2)(A)) → $16,667 on $500,000.

  3. Optional gain election

    An amount certified by the seller: at least the recognized gain × the highest rate in §17041 for individuals (§18662(e)(2)(B)).

  4. Who is covered

    Individuals, residents included; corporations and partnerships only without a permanent place of business in California (§18662(e)(1)).

  5. Remitting

    Escrow may remit by the 20th of the month after close of escrow (§18662(e)(4)(A)).

  6. Fees

    Escrow cannot charge for compliance unless it gives assistance, and then no more than $45 (§18662(e)(7)).

No withholding when

  • The sales price is $100,000 or less (§18662(e)(3)(A)).
  • The seller certifies the property was the seller's or decedent's principal residence, or last used as such, under IRC §121.
  • The sale results in a net loss or a gain not recognized for California tax.
  • A 1031 like-kind exchange, to the extent gain is deferred, or an involuntary conversion under IRC §1033.
  • Foreclosure sale or deed in lieu; a corporation with a permanent place of business in California.

What the TC checks before closing

  • Seller's residency and entity type – asked early, not at the closing table.
  • The signed exemption certificate or affidavit, in the file before funds are disbursed.
  • The withholding line on the seller's settlement statement and who remits it, and by when.

Questions about this withholding

How much is California real estate withholding?

3⅓% of the sales price – $16,667 on $500,000 – or the seller's certified amount on the gain.

Do California residents pay real estate withholding?

The rule covers individual sellers whether or not they are residents; most residents selling a home avoid it by certifying a principal residence or a loss.

Can escrow charge a fee for California withholding?

Only for assistance beyond the written notice, and no more than $45 (§18662(e)(7)).

Related guides

Put the residency question and the exemption certificate on the checklist as tasks with an owner and due date in ClosingCode, with the documents attached to the deal.

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Source: California Revenue and Taxation Code §18662 (leginfo.legislature.ca.gov, read October 25, 2026).

General information, not legal or tax advice. ClosingCode is software; it is not a law firm or brokerage.