CA Form 593: Exemptions, Withholding Calculation, and Filing

California Form 593, the Real Estate Withholding Statement, is the document that decides whether money gets held back from a seller’s proceeds at closing and sent to the Franchise Tax Board as a prepayment of state income tax. The seller uses it to claim an exemption or to calculate what should be withheld. The escrow company uses it to report the sale and remit the funds. If the form isn’t completed before escrow closes, withholding happens automatically at the default rate.

What the Form Does and Who Handles It

Revenue and Taxation Code Section 18662 requires that a portion of the sale price be withheld whenever California real property changes hands, unless the seller qualifies for an exemption.¹ The escrow company (referred to in the instructions as the REEP, or real estate escrow person) almost always acts as the withholding agent. It collects the completed Form 593, holds back any required funds before title transfers, and sends the money and the form to the FTB.²

The default withholding rate is 3⅓ percent of the total sales price.³ That applies to the gross price, not the net after commissions and closing costs. On a $750,000 sale, that means roughly $24,975 held back regardless of what the seller paid in fees or repairs. Miss the deadline for submitting a completed Form 593 to escrow and this is the number that comes out of your proceeds.

Exemptions in Part III

Most sellers complete Form 593 to claim an exemption rather than to compute a payment. Exemptions live in Part III, and the seller certifies them under penalty of perjury. Every seller must provide a Social Security number or taxpayer identification number for any exemption to be valid.

Principal Residence

The exemption used most often covers a primary home. You must have owned and lived in the property as your main residence for at least two of the five years before the sale. The 24 months don’t have to be consecutive, but they must fall within that five-year window.⁴ You also need to meet the federal requirements for excluding gain under Internal Revenue Code Section 121, which allows up to $250,000 for individuals or $500,000 for married couples filing jointly.⁵

If you recently converted a rental to your primary home, be careful. The two-year use requirement is where most principal residence claims fall apart on audit.

Loss or Zero Gain

If you’re selling at a loss or breaking even, check Line 3 in Part III and complete Part VI, which walks through the gain computation: sales price minus adjusted basis minus estimated selling expenses. If the result is zero or negative, the exemption applies.⁶ Estimates are allowed, but they can’t manufacture a loss where there’s actually a gain. If the FTB later finds a taxable gain, you owe the full tax plus interest and penalties.

Sales Price of $100,000 or Less

No withholding is required when the total sales price is $100,000 or less.⁴ A property selling for $100,001 gets no benefit from this exemption.

Foreclosure

Sales under a power of sale in a deed of trust, judicial foreclosure decrees, and deeds in lieu of foreclosure are exempt.³ Short sales do not automatically qualify. Selling for less than the mortgage balance is not the same as being foreclosed on, and you’ll need a different exemption or you’ll face withholding.

Involuntary Conversion

Property taken through eminent domain, destroyed, or condemned qualifies for the Line 4 exemption if you intend to acquire replacement property similar in use, which would qualify for nonrecognition of gain under IRC Section 1033.⁷ Pocketing the proceeds without replacing the property makes the gain taxable.

Tax-Exempt Entities

Organizations that are tax-exempt under both federal and California law can claim the exemption by providing their federal employer identification number and certifying their status.

Calculating Withholding When No Exemption Applies

Part II is where the withholding amount gets documented, and the seller chooses between two methods.

The Sales Price Method

Multiply the total sales price by 3⅓ percent. On an $800,000 sale that’s $26,640. The escrow company doesn’t need to know your basis or expenses to apply this flat rate.⁸ The tradeoff is that it tends to over-withhold, sometimes badly.

The Alternative Calculation

The alternative method bases withholding on estimated gain instead. Complete Part VI to compute the gain, then multiply by the tax rate for your entity type.⁹ The 2026 rates:

Individual: 12.3%
Corporation: 8.84%
Bank or financial corporation: 10.84%
S corporation: 13.8%
Financial S corporation: 15.8%
Trust: 12.3%
Non-California partnership: 12.3%

Take that $800,000 sale again. If the seller is an individual with a $700,000 adjusted basis and $40,000 in selling expenses, estimated gain is $60,000. At 12.3 percent, the withholding is $7,380 rather than $26,640. To use this method, the seller must complete and sign the form before escrow closes.³

Entity Sellers, Trusts, and Co-Owners

The rules for business entities depend on presence in California, not entity type alone. A corporation or LLC taxed as a corporation is exempt if it’s organized under California law or qualified with the Secretary of State.¹ The same rule covers partnerships and LLCs taxed as partnerships doing business in California. Out-of-state entities that aren’t registered and don’t keep a staffed office here face withholding at closing.

A single-member LLC that’s disregarded for tax purposes gets no entity-level exemption. The FTB looks through to the owner. If that owner is an individual, only individual exemptions apply, and the form should be completed using the owner’s information with a note that it’s being filed for the single member.¹⁰

For a grantor trust, use the grantor’s personal information. The grantor reports the sale and claims the withholding credit on a personal return.¹¹ A nongrantor trust is a separate tax entity, so use the trust’s legal name and its federal employer identification number rather than the trustee’s personal information. The alternative rate for trusts is 12.3 percent of the estimated gain.⁹

Each seller in a transaction needs a separate Form 593. Three siblings selling jointly means three forms, each reflecting that seller’s ownership percentage. The one exception: married couples or registered domestic partners planning to file a joint return can share one form, unless they hold unequal interests, in which case separate forms are needed to reflect each spouse’s share.¹²

1031 Exchanges, Installment Sales, and Foreign Sellers

A simultaneous like-kind exchange under IRC Section 1031 is fully exempt from withholding as long as the seller doesn’t receive more than $1,500 in cash or other non-like-kind property (boot). If boot exceeds $1,500, the escrow company must withhold.¹³ Deferred exchanges use the same $1,500 threshold, but the qualified intermediary carries the withholding obligation. If a deferred exchange collapses because the seller can’t identify replacement property in time, the intermediary must withhold 3⅓ percent of the full sales price.

When a completed exchange includes boot over the limit, the sales price method applies to the boot amount only, not the full price. The seller can also elect the alternative calculation on the recognized gain, as long as that gain doesn’t exceed the boot received.

In installment sales, withholding applies to each payment rather than the full sales price up front. At closing, the escrow company withholds 3⅓ percent of the down payment. On each later payment, the buyer withholds 3⅓ percent of the principal portion (not the interest) and submits a new Form 593 and Form 593-V with the funds.¹⁴ The buyer must also send a copy of the promissory note with the initial Form 593; subsequent filings don’t need the note or the seller’s signature.

When the seller is a foreign person, federal FIRPTA withholding of 15 percent of the amount realized applies on top of the California 3⅓ percent.¹⁵ Foreign sellers without a Social Security number use their IRS-issued Individual Taxpayer Identification Number on Form 593.

Filing Deadlines

The escrow company must send the original Form 593, a completed Form 593-V voucher, and any withheld funds to the FTB by the 20th day of the calendar month following the month escrow closed.⁸ Escrow closing on March 5 means an April 20 deadline, not 20 days after closing. The seller gets a copy in the same window, and the remitter keeps a copy on file for at least five years. For exempt transactions, the seller hands the completed form to escrow before closing, and escrow forwards it to the FTB by that same 20th-of-the-following-month deadline.⁴

Claiming the Credit on Your Tax Return

Withholding isn’t a tax that disappears. It’s a credit against whatever you actually owe on the gain. When you file your California return, report the sale on Schedule D and enter the withholding on the appropriate line. Residents file Form 540 and attach the copy of Form 593; nonresidents and part-year residents use Form 540NR.¹⁶ If the amount withheld exceeds your actual tax liability, the difference comes back as a refund. Keep the copy of Form 593 with your records; without it, claiming the credit is harder than it needs to be.

Fixing Mistakes After Filing

Only the escrow company can file an amended Form 593. Sellers who spot an error should contact escrow rather than attempting to file a correction directly with the FTB.⁸ To amend, escrow completes a new Form 593 using the same tax year as the original, checks the “Amended” box in the upper left, enters the corrected information, and attaches a letter explaining the changes. If the original was filed on the wrong year’s form, the FTB asks that you call Withholding Services at 888-792-4900 for guidance.

One hard limit: an amended Form 593 cannot be used to cancel withholding after escrow has closed. Once money has been remitted, recovering it means claiming the credit on your tax return and waiting for a refund.

Penalties

The penalty amounts below apply to taxable years beginning on or after January 1, 2026.⁸ If the escrow company notifies the buyer of the withholding requirement and the buyer fails to withhold, the penalty is the greater of $500 or 10 percent of the amount that should have been withheld.¹⁷ The same $500-or-10-percent penalty hits an escrow company that fails to give the buyer written notification in the first place.

A seller who knowingly files a false certification on Form 593 to dodge withholding faces the greater of $1,000 or 20 percent of the required withholding.¹⁸ That runs on top of the tax and interest owed on the unreported gain.

Late information return penalties scale with how late the filing is: $60 within 30 days, $130 between 31 days and six months late, and $340 beyond six months. Intentional disregard raises the penalty to the greater of $680 or 10 percent of the required withholding.

Most of these can be waived for reasonable cause, but the intentional disregard penalties cannot. And the withholding agent is personally liable for any tax that should have been withheld and wasn’t, so escrow’s exposure runs well past the penalty amounts alone.

1
California Legislative Information. California Revenue and Taxation Code 18662
2
Legal Information Institute. California Code of Regulations Title 18 18662-1 – Withholding – Generally
3
Legal Information Institute. California Code of Regulations Title 18 18662-3 – Real Estate Withholding
4
Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement
5
Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
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Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement – Section: Line 3 – Loss or Zero Gain
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Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement – Section: Line 4
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Franchise Tax Board. 2026 Instructions for Form 593 Real Estate Withholding Statement
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Franchise Tax Board. 2026 Form 593 Real Estate Withholding Statement
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Franchise Tax Board. 2024 Instructions for Form 593 Real Estate Withholding Statement – Section: Line 7
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Franchise Tax Board. Real Estate Withholding
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Franchise Tax Board. 2024 Instructions for Form 593 Real Estate Withholding Statement
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Franchise Tax Board. 2025 Instructions for Form 593 Real Estate Withholding Statement – Section: Part IV, Line 10
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Franchise Tax Board. 2022 Instructions for Form 593 Real Estate Withholding Statement
15
Internal Revenue Service. FIRPTA Withholding
16
Franchise Tax Board. 2025 Instructions for Form 540 California Resident Income Tax Return – Section: Line 73
17
Franchise Tax Board. FTB Pub 1024 Penalty Reference Chart
18
California Legislative Information. California Revenue and Taxation Code 18668