Date: Mon, 21 Jul 2003
Subject: Income tax on sale of property
I just sold my vacation home at Lake Tahoe. I was told by the title company that they are deducting $9,000 for the state of California and it is taxed as income.
I owned the house 27 years and I know I am subject to capital gains, both for the feds and the state. My question is how can this sale be taxed as income? And does the title company have the right to automatically take my money to pay the tax? I feel I am being double taxed on the sale.
Is there anything in the works to try to have the law appealed?
Another over taxed citizen of California
Date: Fri, 01 Aug 2003
You are not being double taxed, but you are justified in being confused about the new rules for income tax withholding on California real estate sales. 3.5% of the sales price is withheld as a California income tax deposit. (The withholding usually doesn't apply to the sale of a principal residence.) On your income tax return, you will report taxable income on Schedule D for the excess of the sales price of the property over the tax basis and selling expenses. (This is the "taxable income" the escrow agent was referring to.) The withholding amount will be shown as an advance tax payment, just like income taxes withheld from Form W-2. Any excess withholding over the amount of income tax on your tax return is payable to you as a refund.
This withholding approach was developed as a way to get cash into the California treasury because of the current budget mess. If we ever get out, everyone hopes it will be repealed. It's becoming a deal killer.
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