We sold a rental in Sac. California and were just told by the escrow company we have to pay 3.3% taxes to California because we live in FL and the property was not our primary residence. This 3.3% comes off the total amount of the sale $325,000.
Very new to this business and I am confused as to why we pay on the full amount of the sale and not our actual profit after depressation and repairs. Any help would be very much appreciated.
I'm not a tax prepare but I would double check with a CPA in CA and also inquire about 1031 exchange.
Let us know because this is a new scenario to me at least.
California has become VERY aggressive about collecting taxes. I just finished a year long fight with them last month where they went back to collect taxes from ten years ago from a retired couple that had no idea that the trade show they attended one time and sold a few items at meant that they had earned income in the state and required a tax return. They had paid the proper sales tax and had no idea they had to pay income tax as well.
The short answer to your question, @Coleen Mathis , is that California has no idea what your profit is, but isn't willing to take a chance that you'll intentionally or unintentionally forget to file a California non resident return (like the clients I mentioned above). So they grab some money on the transaction date and hang onto it for you. When you file your taxes, you'll likely be due a refund and they'll give the difference back to you then.