Legal Question in Tax Law in California

Re: Form 593B, C and E

This cannot really be answered without more information. However, I will try to give you some background to help you work through this.

The "withholding tax" you are referring to is not really a tax (yes I know California documents refer to it this way). What it is, is California requiring the real estate industry to withhold a portion of the sale of real property so that there is money to pay the income tax at the end of the year that would have been due on the sale. Similar to businesses withholding income tax for the Feds on your paycheck. You might get the money back at the end of the year if you do not owe it.

That being said, there are a number of exemptions to the withholding requirement. One is if this was your primary residence, my guess it was not. The exemption that you might qualify (if the decedent passed in the last year) is that the sale might not have any income tax associated it.

Let me elaborate: At the death of any individual, most of their property "steps up in basis" (this includes real property). This means that the basis for tax purposes of your sale (assuming the property was owned by the decedent and not in an irrevocable trust, etc), is the fair market value of the property at the time of the decedent�s death. If the sale price was less then the basis, then no tax and no withholding.

It is very important that you have some documentation regarding the fair market value of the property at the time of the decedent�s death (such as an appraisal) in case the IRS comes knocking.