Form 593 California: Withholding Rules for NRIs Selling Property

When you sell a California property, escrow keeps part of your sale money and sends it to the state. That's Form 593 withholding: 3 1/3% of the sale price by default, or 12.3% of your gain if you choose. If you're a nonresident alien for US tax, the buyer also withholds 10% or 15% for the IRS under FIRPTA.

Neither amount is your final tax, and you can shrink both if you plan before closing. I'll explain how each withholding is worked out, which exemptions let you skip Form 593 entirely, and how much FIRPTA adds on a real $900,000 sale.

Then I'll show you how to get the money back on Form 540NR and Form 1040-NR, what changes on the India side, and the steps I'd finish before you're in escrow.

What Form 593 withholding is

Form 593 is California's real estate withholding statement. When you sell property in the state, the real estate escrow person (REEP), usually your escrow or title company, holds back part of your proceeds. It sends that money to the Franchise Tax Board (FTB) by the 20th of the month after escrow closes.

It applies to California residents, other-state residents and NRIs alike, so your passport doesn't change it. What changes it is the method you pick and whether an exemption fits.

Two ways to work out the amount

The default: 3 1/3% of the sale price

The standard rate is 3 1/3% (0.0333) of the full sale price. It ignores your profit completely. A $900,000 sale means $29,970 held back, whether you made $300,000 or $3,000.

The alternative: 12.3% of your estimated gain

You can elect the alternative withholding calculation instead. Escrow then holds back 12.3%, the rate for individuals, on your estimated gain. That gain is the sale price, minus selling costs, minus your adjusted basis (what you paid plus improvements).

The alternative gives the smaller number whenever your gain is under about 27% of the sale price. I'd run both numbers before signing anything, because escrow won't run them for you.

Take two sellers, each selling for $900,000 with $50,000 of selling costs. Arjun bought in 2014 for $600,000. Meera bought in 2022 for $820,000.

Both rows leave out depreciation. If you rented the property out after moving to India, the depreciation you claimed, or should have claimed, lowers your basis. Your real gain is then bigger than the purchase price suggests.

When no Form 593 withholding applies

Some sales need no withholding at all. You certify the exemption on Form 593 before closing, and escrow holds back nothing. These are the ones that matter most for NRIs:

• The sale price is $100,000 or less.
• It was your principal residence under IRC Section 121, generally owned and lived in for two of the last five years.
• It was last used as your principal residence, even if you don't meet the two-year test.
• You're selling at a loss or zero gain.
• It's part of a Section 1031 like-kind exchange, unless you take out more than $1,500 in cash or other property.

The "last used" exemption is the one I'd check first if you moved to India and left the home empty. Once a tenant moved in, its last use was a rental, and it no longer fits. The federal side of a home sale is covered in selling a US home before returning to India.

A loss exemption needs a US tax ID

The FTB lets you claim a loss or zero gain on Form 593 only if you have a US taxpayer ID, an SSN or an ITIN. Without one, escrow withholds even when you owe nothing.

The 2026 Form 593 instructions let you enter "Applied For" while an ITIN is pending, but I wouldn't count on escrow accepting a loss claim that way. Apply well before you list the property.

The federal withholding that stacks on top

If you're a nonresident alien for US tax, meaning no green card and you don't meet the substantial presence test, a second withholding applies. Under FIRPTA (IRC Section 1445), the buyer withholds part of the price and sends it to the IRS on Form 8288.

The buyer's plans set the FIRPTA rate

The default FIRPTA rate is 15% of the amount realized. It drops to 10% when the price is $1,000,000 or less and the buyer plans to live in the home. At $300,000 or less, on the same condition, it's zero.

So on Arjun's $900,000 sale, FIRPTA is $135,000 if an investor buys and $90,000 if a family buys to live there. Add Form 593's $29,970, and $119,970 to $164,970 leaves the closing before the loan payoff and commissions.

The two systems don't talk to each other. Escrow reports Form 593 to the FTB, and the buyer's side reports FIRPTA to the IRS, so paying one doesn't reduce the other. The full mechanics are in FIRPTA withholding for NRIs.

A home-sale exclusion doesn't switch off FIRPTA

Even when Section 121 excludes your whole gain, FIRPTA still withholds unless you get a withholding certificate on Form 8288-B. The IRS normally acts within 90 days of a complete application. If it's still pending at closing, the buyer still withholds but can hold the money until the IRS responds.

Getting the withheld money back

Both withholdings are prepayments against tax you may not owe at those rates. You recover the excess by filing a return, not by asking escrow.

For California, file Form 540NR, the nonresident return, and claim the Form 593 amount as tax paid against your actual tax on the gain. Your federal tax is also on the gain alone, under the usual capital gains rules for NRIs.

For the IRS, file Form 1040-NR with the stamped Form 8288-A the IRS sends you. It stamps that copy only when the buyer's filing shows your tax ID, so a missing ITIN holds up the federal refund. The return itself works like any other Form 1040-NR filed from India.

Who this applies to

Form 593 applies to almost every seller of California real property, whatever your citizenship. FIRPTA applies only if you're a nonresident alien on the sale date.

An NRI who still holds a green card, or who meets the substantial presence test that year, is a US tax resident. You face Form 593 like any Californian, give the buyer a non-foreign certification, and skip FIRPTA. An NRI living in India with no green card faces both on the same closing.

The India side of the sale

If you're a nonresident or RNOR in India for that year, this US gain generally isn't taxed in India. If you're resident and ordinarily resident, India taxes it, with a credit for the US federal tax. Confirm your Indian status for the year of sale before you set the closing date.

What to do before you're in escrow

1. Confirm your US tax status on the expected closing date.
2. Apply for an ITIN if you have no SSN. Filed with Form 8288-B, the IRS processes the ITIN request within 10 days.
3. Work out your adjusted basis, including improvements and any depreciation.
4. Run both Form 593 methods and check every exemption line.
5. If you're a nonresident alien, file Form 8288-B as soon as you accept an offer.

Common misreadings

Form 593 isn't a foreign-seller rule

It withholds from California residents and out-of-state sellers too. FIRPTA is the part tied to your status as a nonresident alien.

The amount withheld isn't your tax bill

Both withholdings are deposits. You could owe less, or nothing on a loss, and the only way to get the difference back is the return that claims it.

Your first step

Pull your purchase papers and improvement receipts this week, and work out your adjusted basis. That one number tells you which Form 593 method is cheaper, whether the loss exemption fits, and what to ask for on Form 8288-B.

I'd settle the method and the ITIN before you accept an offer, because cutting what's withheld at closing beats waiting for a refund after you file. InvestMates can run both calculations against your actual numbers.