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# New property tax law now in effect in state
- URL: https://www.smdp.com/new-property-tax-law-now-in-effect-in-state/
- Published: 2003-03-07T16:00:00.000Z
- Updated: 2026-10-24T23:33:32.000Z
- Author: Guest Author
- Tags: Opinion, Ocean Park, #archive-import

*By Jodi Summers*

When you sell a second home, you may not get as much money as you had expected when the sale closes.

Under the new California Investment in Real Property Tax Act, residents and nonresidents who sell a home in the state other than their primary residence will be required to turn 3.33 percent of the sale price over to the Franchise Tax Board upon the close of the sale.

“Even if you win by making a wise investment in property, the state makes you feel like a less of a winner by deducting a healthy chunk of cash — whether they’re supposed to get it or not,” lamented Ocean Park property owner George Rieck.

This law, which demands the prepayment of the transferee's state income taxes, went into effect Jan. 1\. It is expected to affect 300,000 California real estate transactions worth $5.8 billion. According to information released by the Franchise Tax Board, the state expects this measure to increase revenues by $225 million for fiscal year 2002-2003.

A version of this law, known as California's Foreign Investment in Real Property Tax Act was first enacted in 1988\. It required tax withholding only for non-California residents. Now, thanks to Assembly Bill 2065, this law has been expanded to include state residents. It is patterned after a federal law that was adopted in 1980.

“As a taxpayer, I am not happy with this change. As an escrow officer, I dread it even more,” said Debbie Brady, officer and assistant manager at GB Escrow in Santa Monica. “But, each time there is a big change, we all manage to adapt to it rather quickly. I assume that this remains true with this law.”

> “As a taxpayer, I am not happy with this change. As an escrow officer, I dread it even more. But, each time there is a big change, we all manage to adapt to it rather quickly. I assume that this remains true with this law.” — – DEBBIE BRADY GB Escrow assistant manager

The California Investment in Real Property Tax Act does not impose new taxes or increase existing taxes. Instead it accelerates the receipt of tax revenue by the state through withholding on investment properties.

Previously, home sellers paid taxes on the gains from the sale of a property when they filed their annual tax return. Those who owe less than the funds withheld will get a refund when they file those returns, which allows the state to draw interest on the money withheld.

Even if the seller can prove the withholding will exceed the gain, no waivers will be allowed by law, said June Barlow, vice president and general council for the California Association of Realtors.

The seller will complete the new 593- C withholding forms and have escrow transmit payment to the Franchise Tax Board. The penalty for non-compliance is $500 or 10 percent of the required withholding amount — whichever is greater. The new law does not significantly change the rules for withholding relating to non-individual legal entities.

“Any way around the act would be a risky legal proposition,” said real estate attorney Rich Besone. “You would have to advise the client that they could be liable for taxes, penalties and interest — plus they would have a legal bill to fight the imposition of the tax.”

One of the few exemptions allowed is if the home sale price is less than $100,000, or if the home is sold as a loss or exchanged for a like property in a 1031 exchange.

“This new law may lead us into the year of the 1031 tax deferred exchange,” Brady said. “If a seller enters into a tax deferred exchange, the escrow company will be sending all the funds to the exchange accommodater and no funds will be sent to the state. This could add to an already healthy real estate investment market because when a property is sold, the seller would be in the market for a replacement property.” (Jodi Summers is a real estate agent at Boardwalk Realty. If you have local real estate questions or opinions you’d like to share, e-mail them to)

*Originally published in the Santa Monica Daily Press print edition on March 7, 2003.* [Read the original PDF.](https://s3.us-east-1.amazonaws.com/smdp%5Fbackissues/030703.pdf?ref=smdp.com)