What Is Form 386×4 for California Real Estate?
Navigate California's tax withholding for nonresident property sellers. This guide clarifies the compliance process and the official forms required for your transaction.
When nonresidents sell real estate in California, they are subject to specific tax compliance rules. While some may search for “Form 386×4,” this is an incorrect or outdated reference. The state’s tax regulations require a specific process to ensure potential income taxes from the sale are collected, which is managed through documents from the California Franchise Tax Board (FTB).
Understanding the Withholding Mandate
California law requires that when a nonresident sells real property, a portion of the proceeds must be withheld and sent to the FTB. This withholding serves as a prepayment of potential state income tax due from the sale. The rule applies to sales with a total price over $100,000 where no exemption is certified.
Sellers can choose how the withholding is calculated. The standard method is 3 1/3% of the total sales price. Alternatively, a seller can elect to base the withholding on the actual gain from the sale, which can lower the amount. Withholding is required even if the sale results in a loss, unless a specific exemption applies.
A nonresident is any individual who does not reside in California or a business entity not organized or based in the state. The obligation to withhold falls on the buyer, but this responsibility is almost always delegated to the Real Estate Escrow Person (REEP) who manages the transaction’s closing.
Required Information for Compliance Filings
The official document for this process is California Form 593, Real Estate Withholding Statement. To complete this form, several key pieces of information must be gathered before the transaction closes. The official and most current version of Form 593 can be located on the Franchise Tax Board’s website.
Seller and Buyer Information
The full legal names and current mailing addresses for every seller and buyer are required. Each party must also provide a valid U.S. tax identification number. This is a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) for individuals, and a Federal Employer Identification Number (FEIN) for business entities.
Property and Transaction Details
The form requires a description of the property, including the full address and the Assessor’s Parcel Number (APN), a unique county identifier. Key financial details of the transaction must also be entered, such as the gross sales price and the official closing date, which are used to calculate the withholding.
Escrow Information
The form requires the full name of the escrow or title company acting as the Real Estate Escrow Person (REEP). The name of the specific officer handling the file and the unique escrow file number are also needed. This ensures the FTB can trace the payment and filing back to the specific transaction.
The Submission Process
The submission process is managed by the Real Estate Escrow Person (REEP). The REEP is responsible for sending the completed Form 593 and the withheld funds to the Franchise Tax Board. This submission must occur by the 20th day of the month following the month the transaction closed.
The REEP prepares a check for the withholding amount, and the completed Form 593 and payment are mailed together. The REEP must also provide copies of the filed Form 593 to both the seller and the buyer. For the seller, this document serves as proof of the tax prepayment, which they will claim as a credit when filing their California nonresident income tax return.