Real Estate Withholding Credit for Pass-Through Entities
According to the California Franchise Tax Board (FTB)
Business entities that pass through any income, credits or deductions to an owner additionally have to pass the real estate withholding credit. A pass through entity is an S corp (limited liability / limited partnership) company. A pass through entity is treated the same as a general partnership (even though it’s technically not one).
A real estate withholding credit that exceeds a pass through’s total tax or fee cannot be refunded. A S-corp, LLC or limited partnerships can use withholding to offset this outstanding liability. Any extra withholding has to be allocated to partners or shareholders.
In California, general partnerships don’t have franchise tax liability or income tax. General partnerships must allot the entire real estate withholding credit to the partners. Shareholders, partners, or members can claim this withholding credit against their individual tax liabilities if they are not a pass-through entity.