Will Escrow Withhold 3.33% on Your Roseville Rental Sale?

Does California withhold taxes when you sell a rental or former home in Roseville?

Yes — unless you qualify for an exemption on FTB Form 593 and sign it before escrow closes, California requires escrow to hold back 3⅓% of your gross sale price and send it to the Franchise Tax Board. On a $650,000 Roseville rental, that's about $21,645 you won't see at closing. It isn't an extra tax. It's a prepayment you get credited back when you file your California return — but if your home no longer counts as your principal residence, you may be able to shrink it, not skip it, and the choice has to be made before you close.
By Rich & Kat Farless | September 22, 2026

If you've sold a home you lived in, you may remember signing a form in your escrow packet that made the state withholding go away. That form is FTB Form 593. For a primary residence, it's usually a one-checkbox exemption — we covered that case in our guide to capital gains tax when selling a home in Roseville.

This post is for everyone else. The house you moved out of and rented. The condo you've owned as an investment since 2015. The home you left behind when you relocated to Idaho or Texas. The property you inherited from a parent.
For those sellers, Form 593 stops being a formality. It becomes a real decision with real dollars attached — and the window to make it closes the day escrow does.

Why California Holds Back 3.33% at Closing

California law (Revenue and Taxation Code Section 18662) treats every sale of California real estate as a potential taxable event. Rather than wait and hope the seller reports the gain, the state collects a prepayment up front.

Here's how it works in a Placer County escrow:

Your escrow officer is the withholding agent. Title and escrow companies in Roseville, Rocklin, and Folsom handle this automatically — you won't deal with the Franchise Tax Board directly at closing.
The default is 3⅓% of the total sales price — not your profit. A $650,000 sale means roughly $21,645 withheld, even if your actual gain is small.

Escrow sends the money to the FTB by the 20th day of the month after your escrow closes.

You claim it back as a credit when you file your California return for the year of sale. If the withholding is more than you owe, the difference comes back as a refund.

That last point is where people get caught. According to the FTB's 2026 Form 593 instructions, once escrow closes, withheld amounts can be recovered only by claiming the credit on your tax return. There's no "oops, let me fix it next week." If you close in October 2026, you're waiting until you file your 2026 return in 2027 — and then until the refund processes.

If that $21,645 was supposed to be part of your down payment on your next home, that's a real problem.

Which Sellers Actually Get Withheld On

Form 593 lists several ways to be fully exempt. For individual sellers in our market, the three that matter most are:
Principal residence (Line 1). You owned and lived in the home as your main residence for at least two of the five years before the sale. This is the exemption most Roseville homeowners use.

Last used as your principal residence (Line 2). This one surprises people. If the last way you used the property was as your main home — even if you no longer meet the two-year test — you're exempt from withholding. Moved out, left it vacant while you bought in Granite Bay, and now you're selling? You likely still qualify. But if you rented it out after you moved out, you don't.

Loss or zero gain (Line 3). If your adjusted basis is equal to or higher than what you'll realize from the sale, you're exempt — but you have to prove it with the computation in Part VI of the form.

The FTB is blunt about that third one: you can't claim a loss just because you won't walk away with any cash, or because you feel you're selling below value. It's a tax-basis calculation, not a feeling.

Two other exemptions show up occasionally: sales of $100,000 or less (rare in Placer County, where the August 2026 median sold price was $693,000) and qualifying 1031 exchanges — though if you receive more than $1,500 in cash or other "boot" from the exchange, the intermediary still has to withhold.

Who typically doesn't qualify for a full exemption:

Owners selling a home they converted to a rental
Investors selling a long-held rental or second home
Former residents who moved out of state and rented the home before selling
Some heirs and trustees — depending on how the property was last used and what the stepped-up basis shows
We walked through the rent-or-sell trade-off in should you rent out or sell your Roseville home. This is the closing-table consequence of choosing "rent" — and it's worth knowing before you ever sign a lease.

The Alternative Calculation: Shrinking the Withholding (or Not)

If you don't qualify for a full exemption, you still get a choice. Form 593 lets you elect an alternative withholding calculation based on your estimated gain instead of your sale price. For individuals, the rate is 12.3% of the estimated gain.
Which one is lower depends entirely on how much of your sale price is profit. Here's the quick math: 3⅓% of the price beats 12.3% of the gain whenever your gain is more than about 27% of the sale price.
Two Roseville examples show why this matters.

Example 1: The long-held rental

You bought a West Roseville home in 2012 for $340,000, put $25,000 into it, lived there, then rented it for the last five years. You're selling for $650,000.
Amount realized after roughly 42,000insellingcosts:**608,000**
Adjusted basis after about 47,000indepreciation:**318,000**
Estimated gain: $290,000
Alternative withholding (12.3%): $35,670
Standard withholding (3⅓% of price): $21,645
Here the standard withholding is lower. You'd leave it alone — and you'd want to talk to your CPA, because your actual tax bill on that gain will likely be well above either number.
Example 2: The 2021 purchase
You bought in Fiddyment Farm at the 2021 peak for $620,000, lived there two years, moved for work, and rented it out. You're now selling for $650,000 — outside the window where you'd still meet the two-of-five-year test.
Amount realized: $608,000
Adjusted basis after improvements and depreciation: about $582,000
Estimated gain: about $26,000
Alternative withholding (12.3%): about $3,198
Standard withholding: $21,645
Same sale price, same city — and electing the alternative calculation keeps more than $18,000 in your pocket at closing instead of in Sacramento until next year.
On a Granite Bay sale at 1.2million,thedefaultwithholdingisalmost**40,000**. The stakes scale with price.
One important warning. The alternative calculation is signed under penalty of perjury. Estimates are allowed, but they can't turn a gain into a loss. The FTB's penalty for knowingly filing a false certificate is $1,000 or 20% of the required withholding, whichever is greater. Your basis numbers — purchase price, improvements, depreciation taken — need to come from real records, ideally reviewed by your tax preparer.
What We Tell Every Rental or Former-Home Seller
This is the timeline we use with our clients when the property isn't a straightforward primary residence:
Before listing: Pull your purchase closing statement, improvement receipts, and your depreciation schedule from past returns. Ask your CPA which Form 593 box applies to you.
When we run your net sheet: We model your proceeds both ways — standard 3⅓% and the alternative calculation — so you know your real cash at closing, not a best-case guess.
When escrow opens: Your escrow officer will send Form 593. Complete it early. Don't let it sit in the packet until signing day.
Before close of escrow: The signed form has to be in escrow's hands before the transaction closes. After that, the only fix is your tax return.
After closing: Escrow gives you a copy of the Form 593 they filed. Keep it — you'll attach it to your return to claim the credit.
If you've moved out of California, one more note: gain on California real estate is California-source income no matter where you live now. You'll file a nonresident return (Form 540NR) to claim the withholding credit.
Every one of these situations turns on details — how long you lived there, when you moved out, whether a tenant ever moved in, what depreciation you've taken. That's exactly why we build this into the pricing conversation, alongside everything else in our breakdown of what it costs to sell a home in Roseville. A few thousand dollars at closing is often the difference between a comfortable next move and a scramble.

Frequently Asked Questions

Is the 3.33% California withholding an extra tax on my home sale?

No. It's a prepayment of California income tax on the sale, credited against whatever you actually owe when you file your state return. If the withholding exceeds your tax, the FTB refunds the difference after you file.
Do I have to pay the withholding if I sold my primary residence in Roseville?
Usually not. If you owned and lived in the home as your main residence for two of the last five years — or if the last use of the property was as your main home and you never rented it — you can certify an exemption on Form 593 before closing. You still need to sign the form; the exemption isn't automatic.

Can I get the money back if escrow withheld it and I qualified for an exemption?

Yes, but only through your California tax return. The FTB's 2026 instructions say amounts withheld can be recovered only by claiming the credit on your return once escrow has closed. That's why the form has to be signed and returned to escrow before closing.

What is the alternative withholding calculation on Form 593?

It lets individual sellers withhold 12.3% of their estimated gain instead of 3⅓% of the gross sale price. It saves money when your gain is less than about 27% of the sale price — common with recent purchases or low-profit sales — and costs you more when your gain is large.
Does Form 593 withholding apply if I inherited the house?

It can. Heirs often receive a stepped-up basis close to the home's value at the date of death, which can mean little or no gain — potentially qualifying for the loss or zero-gain exemption or a small alternative calculation. Our guide to selling an inherited house in Placer County covers the rest of that process.

Know Your Real Number Before You List

If you're selling a rental, a former home, or a property you inherited anywhere in Roseville, Rocklin, Lincoln, Granite Bay, Folsom, or El Dorado Hills, the 3⅓% withholding is one of the biggest line items on your closing statement — and one of the few you can plan around. We'll build your net sheet both ways so you see your actual cash at closing before you ever sign a listing agreement.
Rich & Kat aren't CPAs, and this isn't tax advice — your tax preparer should confirm which Form 593 option fits your situation. But we'll make sure you're asking the right questions early enough for the answer to matter.

If you're ready to talk through your situation — whether you're buying, selling, or just figuring out your next move — Rich & Kat are here to help. Schedule a free consultation at richandkatsoldthat.com/talktous.

About Rich & Kat Farless

Rich and Kat Farless are a husband-and-wife real estate team with over 30 years of combined experience serving buyers and sellers across the Sacramento region. As the #1 husband-and-wife team in Roseville, CA, they specialize in single family, new construction, and luxury properties across Placer, Sacramento, and El Dorado counties.

Connect with them at richandkatsoldthat.com.