California Form 593-E - Real Estate Withholding - Computation Of Estimated Gain Or Loss - 2014 Page 2
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2Instructions for Form 593-E
Real Estate Withholding – Computation of Estimated Gain or Loss
References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2009, and to the California Revenue and Taxation Code (R&TC).
General Information
Line 4 – Purchase Price
If you acquired this property by purchase, enter your purchase price . Your
In general, for taxable years beginning on or after January 1, 2010, California
purchase price includes the down payment and any debt you incurred; such
law conforms to the Internal Revenue Code (IRC) as of January 1, 2009 .
as a first or second mortgage or promissory notes you gave the seller or
However, there are continuing differences between California and federal
transferor in payment for the property . If you acquired the property by gift,
law . When California conforms to federal tax law changes, we do not always
inheritance, exchange, or any way other than purchase, see How to Figure
adopt all of the changes made at the federal level . For more information, go
Your Basis .
to ftb.ca.gov and search for conformity . Additional information can be found
Line 5 – Seller or Transferor-Paid Points
in FTB Pub . 1001, Supplemental Guidelines to California Adjustments, the
Points are charges paid to obtain a loan . They may also be called loan
instructions for California Schedule CA (540 or 540NR), and the Business
origination fees, maximum loan charges, loan discount, or discount points .
Entity tax booklets .
If the seller or transferor paid points for you when you acquired the property,
Purpose
enter the amount paid by the seller or transferor on your behalf on line 5,
unless you already subtracted this item to arrive at the amount for line 4 .
Use Form 593-E, Real Estate Withholding – Computation of Estimated Gain
Line 6 – Depreciation
or Loss, to estimate the amount of your gain or loss for withholding purposes
Enter the amount of depreciation you deducted, or could have deducted,
and to calculate an optional gain on sale withholding amount . This form is
on your California income tax return for business or investment use of
used for sales closing in 2014 .
the property under the method of depreciation you chose . If you took less
The seller or transferor completes this form . Title and real estate escrow
depreciation on your tax return than you could have under the method
persons (REEP) and exchange accommodators are not authorized to
chosen, you must enter the amount you could have taken under that
provide legal or accounting advice for purposes of determining withholding
method . If you did not take a depreciation deduction, enter the full amount
amounts . Sellers or transferors are strongly encouraged to consult with a tax
of depreciation you could have taken . Get federal Publication 946, How to
professional for this purpose .
Depreciate Property, for more information .
Optional Gain on Sale Withholding Amount is the withholding amount
If you do not know how much depreciation you deducted or were allowed,
calculated when the optional gain on sale election has been made by the
you can make an estimate of the amount of depreciation (for withholding
seller or transferor, which includes providing a signature under penalty of
purposes only) . To estimate the depreciation, divide the purchase price plus
perjury . The seller or transferor makes the election and provides the signature
the cost of additions and improvements by 27 .5 and multiply that by the
on Form 593-E . The withholding amount is calculated by multiplying the
number of years you used the property for business use (up to 27 .5 years) .
seller’s or transferor’s applicable tax rate by the estimated gain determined on
Example: Mary bought a house 20 years ago for $150,000 and has used it as
Form 593-E .
a rental property for the last 18 years . Prior to renting the house, she added a
You may use estimates when you complete this form, but the estimates must
pool which cost her $25,000 . Mary’s depreciation is estimated as follows:
not result in the calculation of a loss when you actually have a gain . Any seller
Cost
$150,000
or transferor who, for the purpose of avoiding the withholding requirements,
knowingly executes a false certificate is liable for a penalty of $1,000 or 20%
Plus additions
25,000
Total
175,000
of the required withholding amount, whichever is greater .
Divided by 27 .5 =
6,364
This form is signed under penalty of perjury . The seller or transferor must
Multiply by 18 years =
$114,552
keep this form for 5 years and provide it to the Franchise Tax Board (FTB)
Mary’s estimated depreciation to enter on line 6 is $114,552 .
upon request . However, the seller or transferor is not required to provide this
form to the withholding agent or buyer .
Line 7 – Other Decreases to Basis
Include any other amounts that decrease your basis, such as:
Specific Instructions
• Casualty or theft loss deductions and insurance reimbursements .
Private Mail Box (PMB) – Include the PMB in the address field . Write “PMB”
• Energy credits claimed for the cost of energy improvements added to your
first, then the box number . Example: 111 Main Street PMB 123 .
basis .
• Payments received for granting an easement or right-of-way .
Foreign Address – Enter the information in the following order: City, Country,
Province/Region, and Postal Code . Follow the country’s practice for entering
Line 10 – Additions and Improvements
the postal code . Do not abbreviate the country’s name .
These add to the value of your property, prolong its useful life, or adapt
it to new uses . Examples include room additions, landscaping, new roof,
Part I – Seller or Transferor
insulation, new furnace or air conditioner, remodeling, etc . The cost of repairs
may not be included unless they are part of an extensive remodeling or
Enter the name, tax identification number, and address of the seller or other
restoration project . Do not include any additions or improvements on line 10
transferor .
that were included on line 4 .
If the seller or transferor is an individual, enter the social security number
Line 11 – Other Increases to Basis
(SSN) or individual taxpayer identification number (ITIN) . If the sellers or
Include the amounts paid for any other items that increase the basis of the
transferors are spouses/registered domestic partners (RDPs) and plan to
property, such as:
file a joint return, enter the name and SSN or ITIN for each spouse/RDP .
Otherwise, do not enter information for more than one seller or transferor .
• Settlement fees and closing costs you incurred when you bought the
property .
Part II – Computation
• The amount you paid for special assessments for items such as water
connections, paving roads, and building ditches .
Line 1 – Selling Price
• The cost of restoring damaged property from a casualty loss, or cost of
The selling price is the total amount you will receive for your property . It
includes money, as well as, all notes, mortgages, or other debts assumed by
extending utility service lines to the property .
the buyer as part of the sale, plus the fair market value of any other property
Line 14 – Passive Activity Losses
or any services you receive .
You may only use suspended passive activity losses that directly relate
Line 2 – Selling Expenses
to the property sold . Other losses such as net operating losses, capital
Selling expenses include commissions, advertising fees, legal fees, and loan
loss carry-forwards, stock losses, and passive activity losses from other
charges that will be paid by the seller or transferor, such as loan placement
properties cannot be used .
fees or points .
Line 3 – Amount Realized
The amount realized is the selling price minus the selling expenses .
Form 593-C/Form 593-E Booklet 2013 Page 7
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