Blue Horizon Management Company is required by law to withhold 7% of rental income from owners of California property, who live outside of California. This withholding is a prepayment of your tax debt, ensuring that the State of California receives its anticipated tax revenue from your investment. We encourage you to consult your CPA on all tax-related matters.

Read More: https://www.ftb.ca.gov/pay/withholding/withholding-on-nonresidents.html

FAQ's

Q. How much and how often do funds get withheld from my owner distributions?
A. Blue Horizon must withhold 7% of rent amounts collected from your tenants. This is done automatically each time your tenant pays rent. The withheld funds are then remitted to the California Franchise Tax Board (FTB) on your behalf.

Q. Do I get these withheld funds back?
A. This is a tax question best left up to your CPA. Between Jan 1st and Jan 31st, Blue Horizon will send you California Franchise Tax Board (FTB) Form 592-B itemizing the amounts withheld (prepaid tax) and remitted to the FTB for the previous calendar year. You must then file a California tax return to claim a tax credit for the withheld funds.

Q. Can I opt-out of this requirement?
A. Yes. There are several qualifications to become exempt from this withholding. Please consult your CPA and complete the following steps:​
          (1) Apply for withholding exemption via FTB Form 588
          (2) Wait to receive the FTB Determination Letter, approving the exemption
          (3) Send the FTB Determination Letter to Blue Horizon to stop the withholdings

Q. Does Blue Horizon charge for this additional work?
A. Blue Horizon charges an additional 2% management fee for this extra tax work. This additional fee serves as compensation for the extra accounting time and liability in managing these withholdings. If you move back to California or get approved for withholding exemption via FTB Form 588, Blue Horizon will remove this surcharge.

Q. Why is this a law?
A. This requirement ensures that the State of California receives its tax revenue duly earned within the state from out-of-state owners who may not otherwise file a California state tax return.