California Form 597 W – Nonresident Real Estate Withholding Exemption

California Form 597-W PDF Details

The California Form 597 W is the official Withholding Exemption Certificate and Nonresident Waiver Request required for real estate sales involving nonresident sellers. California tax law requires buyers or escrow companies to withhold a portion of the real estate sale proceeds and remit it to the Franchise Tax Board (FTB) as a prepayment of the seller's state income tax, unless the seller qualifies for an exemption.

How California Real Estate Withholding Tax Works

When a nonresident seller completes a California real estate transaction, the escrow officer is required to withhold 3.33% of the total sale price or 12.3% of the gain on the real estate sale, whichever is less. This real estate withholding tax ensures that nonresident sellers pay any California income tax owed on gains from the property sale. The withheld tax amount is sent directly to the FTB, and the seller later claims a credit on their state tax return.

Exemptions Covered by Form 597 W

Sellers who qualify for one of the following conditions can avoid the real estate withholding requirement:

• The California property is the seller's principal residence under IRC Section 121
• The total sale price of the real estate is $100,000 or less
• The seller is a corporation, LLC, or partnership registered to do business in California
• The seller is a tax-exempt entity, bank, or qualified insurance company
• The real property is held in an irrevocable trust or qualified intermediary
• The seller is an estate of a decedent where the estate does not have a tax liability

Requesting Reduced Tax Withholding

When no full exemption applies, Part II of California Form 597 W allows the seller to request a reduced withholding amount based on their actual California tax liability from the real estate sale. The seller must provide the escrow officer with documentation of the property sale price, estimated tax on the gain, and supporting information about the entity type selling the real property. The FTB reviews reduced withholding requests on a case-by-case basis.

Related California Real Estate Tax Forms

Real estate transactions in California often require several tax and legal documents. The California Form 590-P covers withholding exemption certificates for payees. For the sale itself, a California Real Estate Purchase Agreement documents the transaction terms, and the California Grant Deed transfers legal title of real property to the new owner.