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I am selling a piece of real property and our state requires…

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I am selling a...

I am selling a piece of real property and our state requires us to pay state income tax withhold as part of the transaction which reduces our cash proceeds at the point of sale. Does the payment of this state withholding reduce the adjusted basis for Federal capital gain tax purposes?

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I live in california and it is a long term gain that includes an adjustment for a earlier tax free exchange.

Submitted: 7 months ago.Category: Tax
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10/1/2017
Tax Professional: emc011075, Tax adviser replied 7 months ago
emc011075
emc011075, Tax adviser
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Hi. My name is ***** ***** I will be happy to help you.

The state withholding is just a prepayment of your tax liability, an estimate. You will get a credit for it when you file your CA tax return. Therefore you cannot reduce the adjusted basis for federal capital gains tax purposes by the amount withheld the same way you cannot reduce your W2 income or pension check by the amount withheld by your employer or investment company. It is the same principle.

However what you can do, you can deduct the withholding as state and local taxes on Schedule A - Itemized deduction on your federal return.

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Tax Professional: emc011075, Tax adviser replied 7 months ago

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