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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16579
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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My 2 siblings & I are the trustees of our wonderful late

Customer Question

''''My 2 siblings & I are the trustees of our wonderful late mother's trust and we are in the process of selling the house which is the main part of the trust. We would like to know if we are exempt from the prepayment of the 3 1/3 property sales tax. The house is in Santa Monica , California and my mother lived in it for about 50 years prior to her transition to the other world on December 16, 2009. My sister (who is a successor trustee) and her husband who had been living with our mother continued to live at the house until May 5, 2010. After that, the place was remodeled and I used it as a secondary residence until it was rented out starting February 5,2011. It is still rented to the same family which is in the process of finding the right loan in order to purchase the house. Escrow has been opened and we were told by the escrow officer that money for tax purposes did NOT have to be withheld. However, we were also told that that the escrow person was not in a position to give legal advice. Can you tell us if we are exempt? Thank you and God bless.
Submitted: 4 years ago.
Category: Tax
Expert:  Megan C replied 4 years ago.

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

Are you referring to the 3.8% sales tax that could be imposed on certain real estate transactions?

MyVirtualCPA :

The 3.8% property tax only applies to individuals with over $200,000 in AGI or couples with over $250,000 AGI

MyVirtualCPA :

The tax would be the lesser of the investment income (capital gain) or the amount by which income exceeds the AGI limits

MyVirtualCPA :

Based on your scenario, I would agree with your escrow agent. You are not required to pay this tax.

MyVirtualCPA :

Is there anything else I can assist you with? If not, please take a moment to rate my response as excellent so that I may receive credit for assisting you today.

Expert:  Megan C replied 4 years ago.
Thank you for the opportunity to assist. I see you were unable to join our live chat Please take a moment to review my response. If you cannot see my response, send me a message using the reply button and I will copy it over for you.

If you have further questions, please reply below. Otherwise, please rate my response as "excellent" so that I may receive credit for assisting you today. Thanks again for using
Customer: replied 4 years ago.

I was referring to the three and one third percent withholding required in California upon close of escrow except for those who are exempt. Within the last 5 years the total time that our late mother lived there plus the time my sister lived there was almost 2 years.

Expert:  Megan C replied 4 years ago.
Thank you for your follow up. I'm sorry - I thought you were referring to a federal tax.

In reading the requirements for the tax, and looking through the exemptions which are on page 6 of THIS BULLETIN, this would be exempt from the withholding if it qualified as a principal residence under section 121 of the IRC.

Based on what you told me, it doesn't sound like this was a primary residence - you have to use it as a primary residence 2 out of 5 years. Either that, or use it as a primary residence immediately prior to the sale. This was last used as rental property. Perhaps the escrow company assumes that the family has just held the property since your mother's death?

Please let me know if you require further assistance. If not, please rate my response "excellent" so that I may receive credit for assisting you today. Thanks.
Expert:  Megan C replied 4 years ago.
Thanks for allowing me the opportunity to help you. Please let me know if I can be of any further assistance to you in this matter. I really enjoyed working with you – please feel free to request me again when you come back to ask another question. Simply enter "MyVirtualCPA" in the subject of your question Thanks again for being a JustAnswer customer