Strategy of New California Withholding Tax

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Hello members,

California Individual sellers of investment properties face the instant tax bite during the closing of escrow with this 3.33% withholding tax of the selling price. I appreciate your help of the following questions:

1. If a low equity individual seller deeds the investment property to you with 'subject to' the loan, will you get hit hard with this withholding tax as IRS considered this to be a sale or not ? (Assume there is little capital gain in the investment property and the seller has no cash to pay for the withholding tax at the mean time.)

2. For an individual wants to sell the highly appreciated investment property for cash without any 1031 exchange, the seller doesn't want to deal with the withholding tax and plan to title the property into either corporation or LLC as exemption to the withholding. However, there are two problems. First, how to deed the property into corporation or LLC without tax consquence ? and second, is this the best way to sell the property inside the corportaion or LLC just to get away from the withholding tax or this will get backfired with other taxable events ? BTW, if this way works, which one is better comparing corporation with LLC ?

3. It seems straight option without leasing for flipping properties get away from this withholding in California, any comments of the pro and con ?

Thank you for any feedback and comments.

Tony

Comments(1)

  • DaveT2nd February, 2003

    All your questions are specific to CA state tax rules. I am not familiar with CA state tax law. Suggest you give these questions to your favorite CA personal tax advisor.

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