Guide to the California Capital Gains Tax

Selling a home could give your portfolio a significant boost if you walk away with a sizable profit. Federal and state capital gains tax may apply if your return is above certain thresholds. How much does California tax the sale of a home? We’ll walk you through the rules if you’re planning to put your home on the market in the Golden State.

If you live in California, a financial advisor can help you create a plan to manage your taxes.

What Is the Capital Gains Tax?

A capital gain occurs when you sell an asset or investment for more than what you paid for it. The capital gains tax is a tax on the profits from the sale.

The IRS recognizes two categories of capital gains tax:

Short-term capital gains tax applies to investments held for less than one year. The tax rate is the same as your ordinary income tax rate.
Long-term capital gains tax applies to investments held for more than one year. The IRS imposes maximum capital gains tax rates of 0%, 15% or 20%, depending on your income and filing status.

The federal long-term capital gains tax is lower than both its short-term counterpart and income tax rates. This is also true for states that use a graduated tax system, in which your tax rate increases as your earnings increase. Other states may apply a flat capital gains tax rate.

Capital gains tax applies when you sell assets, whether you’re offloading stocks or selling home. The IRS does, however, give you a break if you sell your home for a capital gain. You can exclude up to $250,000 of the gain from your income if you file single, or up to $500,000 if you’re married and file a joint return.

Tip: Use a capital gains tax calculator to estimate short and long-term capital gains tax.

California Capital Gains Taxes

Unlike the federal government, California makes no distinction between short-term and long-term capital gains. It taxes all capital gains as income, using the same rates and brackets as the regular state income tax.

The following table shows the tax rates that apply to both income and capital gains in California:

California Capital Gains Tax Rates

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
1%	$0 – $10,756	$0 – $21,512	$0 – $10,756	$0 – $21,527
2%	$10,757 – $25,499	$21,513 – $50,998	$10,757 – $25,499	$21,528 – $51,000
4%	$25,500 – $40,425	$50,999 – $80,490	$25,500 – $40,425	$51,001 – $65,744
6%	$40,246 – $55,866	$80,491 – $111,732	$40,246 – $55,866	$65,745 – $81,364
8%	$55,867 – $70,606	$111,733 – $141,212	$55,867 – $70,606	$81,365 – $96,107
9.3%	$70,607 – $360,659	$141,213 – $721,318	$70,607 – $360,659	$96,108 – $490,493
10.3%	$360,660 – $432,787	$721,319 – $865,574	$360,660 – $432,787	$490,494 – $588,593
11.3% (plus 1% for income over $1,000,000)	$432,788 – $721,314	$865,575 – $1,442,628	$432,788 – $721,314	$588,593 – $980,987
12.3% (plus 1% for income over $1,000,000)	$721,315+	$1,442,629+	$721,315+	$980,988+

Arguably, California’s tax friendliness is not as great as what you’ll find elsewhere. However, overall wages are higher which helps to compensate for the differences in taxation.

How Does California Tax the Sale of a Home?

California conforms to IRS tax rules for excluding capital gains from the sale of a home, up to certain thresholds. The limits are the same at the state level: $250,000 if you file single and $500,000 if you’re married filing a joint return.

There are, however, some rules that apply to qualify for the exclusion.

You may only have one home at a time.
In the five years prior to selling the home, you must have owned it and used it as a principal residence for at least two years.
You can’t have claimed the home sale exclusion in the previous two years.

If you’re married, then only one of you needs to meet the ownership requirement but both of you need to meet the principal residence requirement. Any amounts over $250,000 or $500,000, respectively, would be subject to state and federal capital gains tax. How much of a tax benefit you’d get could depend largely on the market and where you live in California.

How the Federal Capital Gains Tax Works

In addition to the capital gains tax at the state level, you will also have to pay a tax at the federal level. The federal government taxes both short- and long-term capital gains. Short-term capital gains are taxed just like any other income:

2025 Short-Term Capital Gains Tax Rates

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0 – $11,925	$0 – $23,850	$0 – $11,600	$0 – $17,000
12%	$11,926– $48,475	$23,851– $96,950	$11,601– $47,150	$17,001– $64,850
22%	$48,476– $103,350	$96,951– $206,700	$47,151– $100,525	$64,851– $103,350
24%	$103,351– $197,300	$206,701– $394,600	$100,526– $191,950	$103,351– $197,300
32%	$197,301– $250,525	$394,601– $501,050	$191,951– $243,725	$197,301– $250,500
35%	$250,526– $626,350	$501,051– $751,600	$243,726– $365,600	$250,501– $626,350
37%	$626,351+	$751,601+	$365,601+	$626,351+

Long-term capital gains, meanwhile, are taxed at either 0%, 15% or 20%, based on total gains. The federal long-term capital gains tax schedule is as follows:

2025 Federal Long-Term Capital Gains Tax Rates

Rate	Single	Married Filing Jointly	Married Filing Separately	Head of Household
0%	$0 – $48,350	$0 – $96,700	$0 – $48,350	$0 – $64,750
15%	$48,351 – $533,400	$96,701 – $600,050	$48,351 – $300,000	$64,751 – $566,700
20%	$492,300+	$600,051+	$300,001+	$566,701+

California’s Overall Tax Picture

A woman reviewing the current income tax brackets for her state.

California is generally considered to be a high-tax state, and the numbers bear that out. There is a progressive income tax with rates ranging from 1% to 13.3%, which are the same tax rates that apply to capital gains. The Golden State also has a sales tax of 7.25%, the highest in the country. With local sales taxes added on, the sales tax rate in some municipalities can climb as high as 10.25%.

Property taxes in California can’t exceed 1% by law. There is no estate tax or inheritance tax.

How to Minimize Capital Gains Taxes in California

If you’re gearing up to sell your home a little tax planning can go a long way. Here are five common ways to help minimize your capital gains tax when selling a home in California:

Consider a 1031 exchange. The home sale exclusion only applies to principal residences, but you could still save on capital gains tax if you’re selling an investment property. A 1031 exchange allows you to defer capital gains taxes by buying a similar property within 180 days. That doesn’t allow you to avoid capital gains tax altogether, but it does give you more control over when you have to pay.
Review eligibility for the home sale exclusion. You may get an automatic tax break if you qualify to exclude part of the proceeds from the sale. Again, you’ll need to meet the ownership and use test to qualify, and exclusions are limited to $250,000 or $500,000, depending on your filing status.
Increase your cost basis. Cost basis is the price you paid for the home, plus any value-adding improvements you’ve made. Investing in some upgrades or renovations, such as a roof replacement or a kitchen reno, could raise your cost basis and reduce the amount of gains subject to tax.
Deduct eligible costs. Certain expenses can be added to your cost basis, apart from any improvements you make. For example, you could add in your selling costs, including escrow fees or commissions paid to a real estate agent or broker.
Time your sales. Your federal capital gains rate depends on your total income. If you expect your income to be lower a year or two from now, you might hold off on listing your home for sale. That might lower your capital gains tax rate if your income is significantly lower later on.

Bottom Line

California taxes capital gains at the same rate as regular income. In turn, any money earned in a year from investments will simply be added to the person’s taxable income. Californians are also subject to federal capital gains taxes, which vary based on whether the gains are from short- or long-term investments. In short, you’ll want to plan things out when you invest as a resident of California, or you could end up getting hit hard at the state and federal levels.

Investment Tips

Closeup of a California homeowner calculating his capital gains tax.

Capital gains taxes can be confusing, and professional advice can be very helpful. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
It’s important to think ahead regarding investments. Use SmartAsset’s investment calculator to get a sense of what your portfolio may look like as the years roll on.