September 22, 2006--San Diego, California--Exeter 1031 Exchange Services, LLC announced today that California Assembly Bill AB 2962 was approved and signed into law by California Governor Arnold Schwarzenegger on September 22, 2006.
California's current income tax withholding law enacted in 2002 and effective January 1, 2003 under Governor Davis requires a mandatory income tax withholding requirement of 3 1/3% based on the gross sales price on the disposition (sale) of real property under certain circumstances.
"The problem with California's current income tax withholding law is that the calculation of the mandatory withholding requirement of 3 1/3% is based on the taxpayer's gross sales price and bears absolutely no relationship to the taxpayer's actual capital gain income tax liability," said William L. Exeter, president and chief executive officer, Exeter 1031 Exchange Services, LLC. Mr. Exeter further stated, "It actually causes over-withholding for many taxpayers."
Assembly Bill AB 2962 amends Sections 18662 and 18668 of the California Revenue and Taxation Code with regards to the mandatory withholding requirements on the disposition (sale) of real estate by certain taxpayers. It is designed to reduce the problem of over-withholding by allowing taxpayers to elect an alternate method for calculating the withholding amount instead of the current 3 1/3% based on the taxpayer's gross sales price.
Taxpayers will be able to choose a withholding amount based on the maximum income tax rate for individuals or corporations applicable to the actual capital gain on the disposition (sale) of their real property. "This solution should eliminate most of the California withholding problems that we have seen day in and day out," said Mr. Exeter.
Taxpayers will be required to complete a certification under penalty of perjury to the buyer or REEP (Real Estate Escrow Person, including but not limited to attorney, escrow officer or qualified intermediary) to elect this withholding method.
Industry professionals may be interested in reading the California Franchise Tax Board's Analysis of Amended Bill and the Revised Analysis on Assembly Bill AB 2962.
Assembly Bill AB 2962 is effective for dispositions (sales) of California real property closing on or after January 1, 2007.
Exeter 1031 Exchange Services, LLC is a leading national provider of Qualified Intermediary, Exchange Accommodation Titleholding, and Advisory services for tax-deferred like-kind exchange transactions pursuant to Section 1031 of the Internal Revenue Code. Exeter 1031 Exchange Services, LLC administers all types of tax-deferred like-kind exchange transactions, including forward, reverse and improvement (build-to-suit or construction) 1031 exchange structures, in all 50 states. Exeter 1031 Exchange Services, LLC currently has national office locations in San Diego, Los Angeles, Fresno, and San Francisco, California and Winston-Salem, North Carolina.
