Among new laws taking effect for investment property sales after January 1, 2007 , this one gives a break to most real estate investment property sellers.
Here's an excerp from a San Francisco newpaper article:
-- Lower withholding on property sales: If you sell any type of real estate other than your primary residence for more than $100,000 in California, the escrow company is usually required to withhold part of the proceeds for state taxes.
The old withholding rate was 3.33 percent of the sales price.
"Many times that resulted in over-withholding," says Denise Azimi, a spokeswoman for the California Franchise Tax Board. Sellers had to wait until they filed their return to recoup the excess tax.
Now you have a choice: You can request withholding at the old rate or an amount equal to your estimated capital gain, taxed at your marginal state-tax rate, which for most individuals is 9.3 percent.
If you sold a $1 million property with a $100,000 capital gain, under the old law your withholding would have been $33,333. Under the new option, it would be $9,300, assuming a 9.3 percent tax rate.
The new law applies to property sold starting this year.
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This is especially important to sellers with a high selling price and fairly small gain. I've had client's tell me nightmare stories about having to take out home equity loans to cover the franchise tax!
We here in California will gladly take any new tax breaks we can get!
Paula Straub
www.savegainstax.com
Questionnaire to find out if you qualify to save thousands in Capital Gains Tax
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