two separate issues presented in this fact pattern.
California withholding. Cal has relatively new rules which require a withholding on any CA property sold (it does not apply to one’s principal residence, but it does apply to almost everyting else). The withholding is based on the GROSS sales price. This is a refundable tax. When you file your 2005 CA tax returns, you can get some or all of it back, depending on the tax consequences.
computing the gain. residential properties in CA have jumped over the past 3 years. your basis should be the FMV that prevailed on the date of death. the appreciation since then will be taxable as capital gain. it will qualify as long term gain, so you will get the reduced federal rates. But CA will hit you at their ordinary rates. and it does not matter if you are a non-resident. the property is in CA, so the tax applies.
Posted by ralph castro on June 17, 2005 at 18:21:45:
I inherited a property in california with my brothers when our mom passed away 3 years ago. we are in the process of selling it and under california tax code 18662 we must pay 3 1/3 % of the proceeds in taxes. My question is if it is an inherited property do the rules still apply when a property is sold? the home appraised at $271,000 at the time of her death but is now selling for $545,000, if that matters. Also no one has lived in the property since her death.
Is that 3 1/3% of the PROCEEDS? or 3 1/3% of the GAIN?
On the question about inherited property; What RULES are you talking about?
Not real sure about CA taxes, bu you’ll owed CAPITAL GAINS on the gain from $271K to $545K. You got a “step up” in value at her death. So you didn’t get her “basis” (which was probably less than $50K if she’d lived there for 20 years) but you pay on the gain from inheritance until sale.
Plus you’ll owe CA whatever their hit is on the gain.