How the Franchise Tax Board Affects Your Rental Property

Olivia Back

In the state of California, property management companies are required to withhold 7% of gross payments to owners who reside outside the state. If you’re new to owning rental property in California, you may have questions about the FTB, your property, and if you can be exempt.

Disclaimer: Please consult your tax preparer regarding these matters. We are not tax professionals.

Does this apply to me?

If you do not reside in California but make wages in California that exceed $1,500 in a calendar year (i.e. on you rental property), you are subject to this tax.

How do I know if I am exempt?

You may qualify for a waiver or reduction if one of the following applies:

  • Payee has California state tax returns on file for the two most current taxable years in which the payee has a filing requirement. Payee is considered current on any tax obligations with the Franchise Tax Board (FTB).
  • Payee is making timely estimated tax payments for the current taxable year. Payee is considered current on any tax obligations with the FTB.
  • Payee is a corporation that is not qualified to do business and does not have a permanent place of business in California but is filing a tax return based on a combined report with a corporation that does have a permanent place of business in California. Attach a copy of Schedule R-7, Election to File a Unitary Taxpayers’ Group Return, from the combined report.
  • Payee is a newly admitted S corporation shareholder, partner of a partnership, or member of a limited liability company. In the “Newly Admitted Date” box, provide the date this shareholder, partner, or member was admitted. The waiver will expire at the end of the calendar year succeeding the date the payee was newly admitted. Once expired, the payee must have the most current California tax return due on file or estimated tax payments for the current taxable year in order to have a new waiver granted.
  • Other – Attach a specific reason and include substantiation that would justify a waiver from withholding. If payee is a group return participant, attach acopy of Schedule 1067A, Nonresident Group Return Schedule, from the group return.

I am active duty military currently residing in another state/country, but my primary residence is in CA. What do I do?

If you are active duty military, you are still considered a resident of California, i.e. this would not apply to you. For more information regarding taxation for military personnel, visit the FTB government website.

Can I Pay This Myself?

No, the property management company is required to pay this for owners by California law. 

We hope this answered some of your questions about the Franchise Tax Board and your rental property. For additional information, check out the following links!

https://www.ftb.ca.gov/online/myacct/help/withholding-waiver-individual.shtml

https://webapp.ftb.ca.gov/wass/form589.aspx?Lang=en-US

https://www.ftb.ca.gov/index.shtml

 

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