California Form 593 "Property Last Used as a Principal Residence" Exemption

taxnightowl · ‎January 17, 2026

Selling a home in California. One owner clearly meets the "principal residence" exemption from California withholding (as well as exclusion of up to $250K gain from taxable income) on the sale proceeds per IRC Sec 21 (lived in home as primary residence for at least 2 of the last 5 years).

However, another owner moved out 6 years in the past. They definitely do not qualify for the exclusion of gain per IRC 121, BUT do they still qualify for exemption from California 593 withholding at the time of sale?

CA FTB Guidelines read:

Property Last Used as a Principal Residence

You qualify for a withholding exemption if you last used the property as your principal residence without regard to the two-year time period (for withholding purposes only).

The other owner's last use of the property was definitely as their principal residence -- they did not rent back or otherwise use the home. They did, however, use the CA 593 exemption from withholding and the IRC 121 exclusion of gain on the sale of a different home in the intervening 6 years.

Searches of the web do not provide a clear answer for this scenario. If they do qualify for the withholding exemption, why then does the FTB even bother with detailing the first exemption for a principal residence if used for 2 years within the last 5 years before sale (because that would be subsumed by the exemption, "Last Used as a Principal Residence")?

taxnightowl

In case anyone else is as confused as I was by the obtuse language on that form, I'm going to answer my own question. I finally realized the CA FTB means this:

1) If one's last use of a property, regardless of when, was as a principal residence, then the sale of that property is not subject to withholding.

2) However, if one's last use was as a rental, vacation home, etc., or anything other than a principal residence, then one must satisfy the rule of having primarily lived in the home for at least 2 out of the 5 years prior to the sale in order to be exempt from withholding.

This would have been far clearer had they even reversed the order of Part III Lines 1 and 2.