Form 593 California & FIRPTA
If you are Canadian (U.S. non-resident) who is selling property in California, the sale is governed by:
1 Form 593: (Real Estate Withholding Statement)
California law requires a buyer to withhold a percentage of the sales price on the disposition of U.S. property by Canadians, and send it to the FTB (Franchise Tax Board). Form 593 is the vehicle for reporting the details of the transaction.
2 FIRPTA (Foreign Investment in Real Property Tax Act)
FIRPTA is a U.S. federal law that the IRS enforces to ensure that Canadians and non-residents meet their federal tax obligations from the disposition of U.S. property.
Note: Dispositions include not only a sale, but also an exchange, liquidation, gift, transfer, or redemption. Our discussion refers to a sale, which is the most common disposition of U.S. property.
Steps in Selling Property in California
1 List Your Property for Sale & Accept an Offer
After listing your property with a realtor, you then select a title/escrow company that understands how to work with Canadian sellers and with the FIRPTA & Form 593 requirements in California.
2 Determine Your FIRPTA & Form 593 Withholding Rates & Exemptions
To ensure that the IRS and the FTB are able to collect any taxes owing, the buyer is designated as the withholding agent. The buyer’s title/escrow agent’s responsibility is to withhold the required amount from the purchase price and remit the withholdings to both tax authorities.
California Withholding: There are two options for determining the withholding amount:
- 3 1/3% of the proceeds of the sale.
- 3% of the capital gain on the sale.
These rates do not apply if:
- You are claiming an exemption. See form 593-C below.
- The property is being foreclosed upon.
- Sale price under $300,000: no withholding if the buyer signs an affidavit
- Sale price $300,000 to $1,000,000: reduced withholding rate of 10% if the buyer signs an affidavit
- Sale price over $1,000,000: withholding rate of 15%.
- Exemption or reduction of withholdings based on your tax situation.
3 File All FIRPTA & Form 593 Compliance & Withholding Forms
After all conditions and contingencies have been removed and the sale of your California property is firm, the relevant FIRPTA and Form 593 compliance forms need to be completed. This must be done prior to closing.
FIRPTA: see Forms 8288, 8288-A, and 8288-B
California: see forms below.
4 ITIN Number Requirement
An Individual Tax Identification Number (ITIN) is required by all Canadians before filing their U.S. federal and state tax returns. The amount withheld from your sale cannot be properly applied, and possibly refunded, to your account until your tax returns are filed.
5 File All Tax Returns
Each of the sellers is required to individually file these tax returns:
- Federal personal income tax return for non-residents.
- California personal income tax return for non-residents.
- Canadian personal tax return.
Additional FTB 593 Forms
Form 593-C – Exemptions
There are potentially some exemptions available. The most common are:
- Principal Residence. You qualify for this exemption if, during a five-year period prior to the sale, you used your property as a principal residence for any two years.
- Zero gain, or a loss on the sale.
- Sale of property for $100,000 or less.
You must complete Form 593-C (Real Estate Withholding Certificate) for these exemptions.
Form 593-E – Calculation of Gain or Loss
In the case of a loss, you will also have to complete Form 593-E (Computation of Estimated Gain or Loss).
Your One-Stop Service for Selling Property in California
Navigating all the Form 593 and FIRPTA requirements for selling your California property isn’t easy. But when you work with FIRPTA CANADA, you can relax.
Like our country’s national animal, we work industriously on your project until it’s successfully completed. We will:
- File all required forms.
- Provide your title or escrow company with all required documentation.
After the closing of your sale, we will do the following:
- Assist you in obtaining an ITIN (Individual Taxpayer Identification Number) for each of the owners of the property. FIRPTA CANADA is an approved IRS Certifying Acceptance Agent (CAA).
File the U.S. federal and California tax returns, and Canadian tax returns for each seller.
Get Started Today
Sit back and relax, and let us handle your transaction from start to finish.
To make it as easy as possible for you, we can work with you in person or virtually, or a combination of both. As your fellow Canadians, we won’t let you down.
Contact us today to start the process and we’ll respond within two business days, unless it is tax season as we may take a bit longer.