If you’re an experienced investor you’ve probably heard of the California 593e Tax Form. If not, you will want to know about it.
In California, if you have not lived in a property as your primary residence for at least 2 out of the last 5 years, you have to pay California State Tax on the sale of the property. They automatically withhold 3.33% of the sales price within every escrow transaction if it is not your primary residence.
In most cases, this basically means you are giving the California Government an interest fee loan until you do your taxes in April. There is a better way!
The 593e form, allows you fill in a bunch of financial information on the property you purchased (purchase price, repair costs, sales price, loan fees, etc) and you can pay taxes only on the profit you earned from this property!
Say you sold a property for $200,000 and made a $30,000 profit, doing things the regular way, you’d pay $6,600 ($200,000 x 3.33% California State Tax. If you use the 593e form, you’d pay just $2,865 (9.55% of $30,000). This put an additional $3,700 in your pocket until tax time. That is no small amount of money!
Most escrow companies do not really know about this, unless you send it to them filled out correctly. You can click here to download the 593e form.
I our first deal we didn’t know this and ended up paying almost $6,000 extra! Scary to loan California that much money when they are talking about issuing IOU’s!