Form 593 Withholding When You Sell a San Diego Rental or Inherited Home

Form 593 is the Franchise Tax Board’s real estate withholding statement. The form instructions say withholding is required when California real estate is sold or transferred, and that it is not required when any of these apply:

• The total sales price is $100,000 or less. With several owners, the test uses the total price, not each owner’s share.
• The property is in foreclosure. Publication 1016 lists what counts: a sale under a power of sale, a sale under a decree of foreclosure or a deed in place of foreclosure. An ordinary sale by an owner who is behind on payments is not on that list.
• The seller certifies an exemption in Part III of the form.

The escrow holder usually handles the form and the payment. It sends both to the Franchise Tax Board by the 20th day of the month after closing and gives the seller a copy.

This guide follows the 2026 form and instructions and Publication 1016 as revised in February 2026. A sale that closes in 2027 uses the 2027 form, so read the rates and lines on the form escrow gives you.

The form asks for the seller’s name, tax number and ownership percentage. In an inherited or trust sale the right answer is not always the person signing.

• An individual owner uses their own name and Social Security number, or an individual taxpayer identification number if that is what they have. Each co-owner completes a separate form with their own share. Spouses or registered domestic partners who will file a joint return can share one, with each person’s number.
• A revocable living trust is generally ignored for tax purposes while its creator is alive. The form takes that person’s name and Social Security or individual taxpayer identification number, not the trust’s or the trustee’s.
• A trust that became irrevocable when its creator died is a taxpayer of its own. The form takes the trust’s name and federal employer identification number, not the decedent’s or the trustee’s Social Security number.
• An estate in probate sells as the estate, with the estate’s own federal tax number. Ask the estate’s tax preparer for it before escrow opens.
• Heirs who already hold title sell as individuals, each for their own share.
• A person on title with no financial ownership enters 0.00% and is not withheld upon. The instructions give the example of a family member placed on title to receive the property at the owner’s death.

Part III of the 2026 form lists the certifications that remove withholding entirely. Three matter here.

• Line 1, principal residence. The home qualifies as the seller’s principal residence under the federal home-sale rule. That generally means the seller owned it and lived in it as a main home for two of the five years before the sale. When a decedent’s estate or trust sells, the test looks at the decedent.
• Line 2, last used as a principal residence. The two-year period is disregarded for this line, but the last use has to have been as the main home. The instructions say a property last used as a rental, a vacation home or a second home does not qualify.
• Line 3, loss or zero gain. The seller completes the computation in Part VI and shows that the amount realized is no more than the adjusted basis. Receiving no cash at closing does not qualify by itself.

For a rental, lines 1 and 2 usually do not fit. Publication 1016 notes that a property that was rented can still qualify under line 1 if it meets the two-of-five-years test.

If part of the property was your home and another part was rented separately, the exemption reaches only the part that was your home. The instructions call for a second Form 593 for the rest, with the price divided the way you divided it for depreciation.

For an inherited home, the seller decides the line. If the decedent’s estate or trust sells a home that was the decedent’s principal residence, Publication 1016 says withholding is not required when that is certified in Part III.

Heirs who sell in their own names answer for themselves. Their basis is generally the value at the date of death, so line 3 or the gain-based calculation may fit; our basis and capital gains guide covers that figure.

The certification is signed under penalty of perjury. Publication 1016 puts the penalty for knowingly signing a false exemption at the greater of $1,000 or 20% of the required withholding. The form itself says title and escrow companies are not authorized to give legal or accounting advice on the amount, so this is a question for your tax preparer.

If no exemption applies, the seller chooses between two methods on the form:

1. The sales price method: the sales price times 3 1/3%, printed on the form as .0333.
2. The alternative calculation: the estimated gain from Part VI times the rate for the seller’s filing type. The 2026 form sets that rate at 12.3% for an individual and for a trust.

• Before closing. Give escrow the completed, signed form. On a sale that is subject to withholding, Publication 1016 says it is required if escrow does not receive a signed form identifying your exemption before the transaction closes.
• At closing. Ask escrow to show the withholding on the estimated settlement statement, so the net figure is right before you sign.
• After closing. Keep the copy of Form 593 that escrow sends you. The instructions say that once the sale has closed, the amount can be recovered only as a credit on the tax return for that year. There is no early refund.

To claim the credit, file the California return that reports the sale and enter the amount withheld from the form. If a trust passes the gain to its beneficiaries, it also has to pass the withholding credit to them on a separate form. The trust’s preparer handles that.

• Who is on title, in what capacity and in what shares.
• The tax number for each seller. Send it only through the secure channel escrow or the preparer provides.
• How the home was used and when: the dates someone lived there and the dates it was rented.
• The purchase price, or for an inherited home the value at the date of death.
• Improvements, and for a rental the depreciation records.
• The expected selling expenses and the closing date.

For the rest of the seller’s side, see seller closing costs. For a rental with a tenant in place, see rent, deposits and prorations in a tenant-occupied sale.