Capital gains tax If you profit from the sale of a home in California, then you may owe some capital gains tax unless you qualify for an exclusion, which we’ll address in the chart below. Capital gains are the profits you make when you sell an appreciable asset, such as a house. For example, if you buy a home for $200,000 and sell it for $500,000, you have a capital gain of $300,000. In California, capital gains are taxed by both the state and federal governments. On the state level, California’s Franchise Tax Board (FTB) taxes all capital gains as regular income. Depending on your tax bracket, the tax can be anywhere from 1% to 13.3%. On the federal level, gains can be considered either short-term or long-term. Short-term capital gains are when you sell an asset within a year of purchasing it. Those gains are included in your ordinary income and taxed according to your tax bracket. Long-term capital gains are any profits made from the sale of an asset after at least a full year of ownership. For a home sale, those gains are taxed according to the following table. 2024 capital gains tax brackets (long-term capital gains) The table below shows the long-term capital gains rates for tax year 2024. Single filers can qualify for the 0% long-term capital gains rate with a taxable income of $47,025 or less. Married couples filing jointly can qualify with an income of $94,050 or less. Tax rate Single filers Married filing jointly Head of household 20% $518,901 or more $583,751 or more $551,351 or more 15% $47,026 to $518,900 $94,051 to $583,750 $63,001 to $551,350 0% $0 to $47,025 $0 to $94,050 $0 to $63,000 Source: IRS.gov (Capital gains table) Both the IRS and FTB provide a capital gains tax break for home-sellers who meet certain conditions. The maximum amount of capital gain that can be excluded is $250,000 for single filers or $500,000 for a married couple filing jointly. To qualify for the full exclusion amount, according to IRS Publication 523, the following criteria must be met: The home being sold is your primary residence. You’ve owned the home for at least two years in the five-year period before selling it. You’ve lived in the home for at least two years within the five-year period before selling it. The years you’ve lived in it don’t need to be consecutive. Certain exceptions to this rule are made for those who are disabled or those in the military, Foreign Service, intelligence community, or Peace Corps. You didn’t acquire the home through a like-kind exchange (also known as a section 1031 exchange) within the past five years. This is basically when you swap one investment property for another. You haven’t claimed the exclusion on another home in the past two years. You aren’t subject to expatriate tax (a government fee paid by those who renounce their citizenship or take up residency in another country). If you don’t quite check all of these boxes, you may still qualify for a partial exclusion of gain. This can happen if the main reason for your home sale is a change in workplace location, a health issue, or an unforeseeable event. For details on such circumstances, please refer to IRS Publication 523. How to report your California capital gains taxes For your federal return, report your capital gains and losses by using U.S. Individual Income Tax Return (IRS Form 1040) and Capital Gains and Losses, Schedule D (IRS Form 1040). For your California capital gains, file California Capital Gain or Loss Schedule D (540). California transfer taxes A transfer tax is a transaction fee tacked onto the sale of any land or real property. California’s documentary transfer tax varies depending on the location within the state. The law permits general law counties and cities to charge 55 cents per $500 of property value or the amount paid ($1.10 per $1,000). This amount can only be increased by charter counties or cities — those that have adopted a charter and therefore have supreme authority over municipal affairs. Of California’s 482 cities, 121 have charters. Here are some examples of what the documentary transfer tax looks like in a few of California’s largest cities: Location Transfer tax rate on a $500,000 home* Transfer tax paid on a $500,000 home San Diego 55 cents per $500 $550 Sacramento 55 cents per $500 $550 San Francisco $3.40 per $500 (More than $250,000 but less than $1,000,000) $3,400 Los Angeles $2.25 per $500 $2,250 *The transfer tax rate in some cities is tiered so that the greater the purchase price or market value, the greater the tax. When transferring a home in California, the seller usually pays the tax, but this can be a point of negotiation during the transaction. If left unpaid by the time the sale goes through escrow, then the payment responsibility automatically falls on the buyer. Property taxes owed Annual property taxes in California have two payment stubs. They can be paid simultaneously or in two installments. The first installment is due Nov. 1 and becomes delinquent Dec. 10. The second installment is due on Feb. 1 and becomes delinquent April 10. Once a home is sold, the seller is no longer responsible for its property taxes. For example, if the fictional Jim and Susie pay the first installment in November and then sell their Sacramento home in December, it is now up to the buyers to cover the second installment due in the spring. Aird says he experienced a scenario like this firsthand as the buyer of a California home in 2021. “Part of the closing cost was paying into an escrow for that next property tax payment that was due in a few months,” Aird says. “It was our responsibility as the buyer.”
