The short answer
Every sale of California real estate over $100,000 is subject to withholding of 3 1/3% of the sales price, or an elected amount based on gain, and the seller's escape route for an exchange is Form 593, Part IV, line 10, Simultaneous or Deferred Exchange. Checking line 10 exempts the sale when escrow closes, but the qualified intermediary must withhold later if you receive more than $1,500 of cash or other non-like-kind property, and must withhold 3 1/3% of the full sales price if the exchange fails. Both later events are reported on a second Form 593 dated when the money leaves the exchange account. The rules apply to California residents and nonresidents alike; the state's tax on the sale itself is on the California 1031 exchange page.
At a glance
| Authority | Revenue and Taxation Code section 18662, administered by the Franchise Tax Board |
|---|---|
| Default withholding | 3 1/3% of the sales price, or the gain times the seller's rate under the alternative calculation |
| No withholding | Sales price of $100,000 or less, property in foreclosure, or a full exemption certified in Part III |
| Exchange line | Part IV, line 10, Simultaneous or Deferred Exchange, signed by the seller before escrow closes |
| Boot | The intermediary withholds when cash or other property received exceeds $1,500 |
| Failed exchange | The intermediary withholds 3 1/3% of the sales price, or the gain-based amount, less any boot withholding already sent |
| Due date | Form 593 reaches the FTB by the 20th day of the month after escrow closes, even when nothing is withheld |
| Alternative rates | 12.3% individuals and trusts, 8.84% corporations, 13.8% S corporations |
California withholds on every seller unless Form 593 certifies an exemption
California does not limit the rule to nonresidents. The 2026 Form 593 instructions say withholding is required when California real estate is sold or transferred, and the amount withheld is sent to the Franchise Tax Board under R&TC section 18662. Withholding is not required when the sales price is $100,000 or less, when the property is in foreclosure, or when the seller certifies an exemption in Part III.
The person who withholds is the real estate escrow person, which the instructions define to include any attorney, escrow company, title company or qualified intermediary that receives and disburses payment for the sale.
An exempt seller's Form 593 goes to the escrow person or intermediary before escrow closes and on to the FTB by the 20th day of the month following the month escrow closes. A seller who knowingly signs a false certificate to avoid withholding faces a penalty of the greater of $1,000 or 20% of the required withholding.
The exchange is claimed on line 10, not among the Part III exemptions
Part II identifies the seller. For an exchange, the property address is the relinquished property. A single-member LLC that is disregarded is reported under the member's name and number, with a note on side 1 explaining why it differs from the recorded owner; a grantor trust is reported under the grantor.
Part III, lines 1 through 9, are full exemptions unrelated to an exchange, among them a principal residence, a loss or zero gain, a section 1033 conversion, a corporation with a permanent place of business in California, and a California partnership or an LLC taxed as one. If one applies, you do not need line 10.
Part IV is completed only when Part III does not apply. Line 10 states that the property is part of a simultaneous or deferred like-kind exchange under section 1031. For a deferred exchange the instructions say the sale is exempt from withholding at the time of the initial transfer, and the seller signs the perjury statement on side 3; the buyer does not sign on an exchange. Line 11 covers installment sales and line 12 is checked when nothing applies.
Part VI lets you base withholding on gain, which only helps when gain is a small share of price
Lines 13 through 28 estimate the gain from the selling price, selling expenses, purchase price, depreciation and improvements. If you cannot document depreciation, the instructions allow an estimate: building cost plus improvements, divided by 27.5, times the years of rental use.
Line 29 multiplies the gain by the rate for your filing type, and line 30 multiplies the selling price by 3 1/3%. You elect one on line 36: box A for the sales price method or boxes B through H for the alternative calculation. The rate table is 12.3% for individuals, non-California partnerships and trusts, 8.84% for corporations, 10.84% for banks and financial corporations, 13.8% for S corporations and 15.8% for financial S corporations.
Since 3 1/3% divided by 12.3% is about 27%, an individual's gain-based figure is lower only when the gain is under roughly 27% of the price. Hypothetically, on a $1,500,000 sale with a $600,000 gain, the sales price method gives about $50,000 and the gain method $73,800, so the default is cheaper. Run your own numbers with your CPA before electing.
Boot over $1,500 and a failed exchange come back on a second Form 593
If you receive money or other property beyond the like-kind property worth more than $1,500, the intermediary must withhold. The second Form 593 checks Boot on line 35, enters the boot on line 33 and dates line 32 on the day the boot was distributed. Withholding is 3 1/3% of the boot, or, under the alternative election, the boot up to the recognized gain times your rate. What counts as boot is explained in what boot means in a 1031 exchange.
If the exchange does not happen or does not qualify, the intermediary withholds 3 1/3% of the sales price or the gain-based amount, checks Failed Exchange, and dates line 32 on the day it was determined the exchange would fail and cash was released. Any withholding already sent on boot reduces the amount.
Hypothetically, a $1,500,000 exchange that leaves $90,000 unspent at day 180 costs about $3,000 of withholding on the boot under the sales price method, while an outright failure costs about $50,000. Both are prepayments, not the tax itself. Run your own numbers with your CPA.
Recovering withholding and the other filing California expects from exchangers
After escrow closes, withholding cannot be cancelled by amending Form 593; it is recovered only as a credit on the tax return for the right year. Because boot or failed-exchange withholding in the year after the sale is dated in that later year, the instructions treat it as a credit for that year, since you can use installment reporting. If you elect to report the gain in the sale year instead, contact Withholding Services and Compliance before filing to move the credit.
If you exchange California property for property outside California, you must file an annual information return, Form FTB 3840, for as long as the deferred gain stays unrecognized. A DST interest in another state counts, which is one of the issues covered in multi-state tax issues for DST owners.
Withholding is separate from the city and county transfer taxes due when the deed records; those are on the California city transfer tax page. For the other states that take money at the table, see which states withhold at closing.
Related questions
Does a California resident need Form 593 in an exchange?
Yes. California withholding applies to residents and nonresidents, so a resident seller also completes Form 593 and checks line 10. The escrow person sends the form to the FTB even when nothing is withheld.
Who signs Form 593 on an exchange?
The seller signs the perjury statement on side 3. The instructions say the buyer is not required to sign on an exchange transaction, and the intermediary signs only if it certifies a cash poor transaction.
My exchange left $1,200 in the account. Is anything withheld?
No. The line 10 instructions require withholding only when money or other property received exceeds $1,500. The $1,200 is still boot and is taxable on your return.
Which year's Form 593 is used for boot paid out in the year after the sale?
The year of the date entered on line 32, the day the boot or failed-exchange cash was distributed. The FTB cannot process a form whose year does not match line 32.
Can the escrow officer cancel withholding that should not have happened?
Not after escrow closes. An amended Form 593 cannot cancel withholding; the amount is claimed as a credit on your California return. Errors in names or numbers are corrected only by the escrow person on an amended form.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.