Learn about the capital gains tax on the sale of a house in California, including its implications and how it affects homeowners.

Introduction

Are you planning to sell your house in California? It's important to understand the capital gains tax and how it may apply to you. This article will guide you through the basics, answering the question, "What is the capital gains tax on the sale of a house in California?"

What is the Capital Gains Tax?

The capital gains tax is a tax imposed on the profit made from the sale of an asset, such as a house, stocks, or real estate. In the context of selling a house in California, the capital gains tax is levied on the difference between the sale price and the original purchase price.

How is the Capital Gains Tax Calculated in California?

In California, the capital gains tax is calculated based on the federal tax rate, which is currently determined by the taxpayer's income bracket. As of 2021, the federal capital gains tax rate ranges from 0% to 20%, depending on your income level.

Additionally, California imposes its own capital gains tax rate, which is currently 9

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Sale of your principal residence. We conform to the IRS rules and allow you to exclude, up to a certain amount, the gain you make on the sale of your home. You may take an exclusion if you owned and used the home for at least 2 out of 5 years. In addition, you may only have one home at a time.

Two years

The seller must have owned the home and used it as their principal residence for two out of the last five years (up to the date of closing). The two years do not have to be consecutive to qualify. The seller must not have sold a home in the last two years and claimed the capital gains tax exclusion.

Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference. If you sold your assets for more than you paid, you have a capital gain.

When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.

In California, capital gains from the sale of a house are taxed by both the state and federal governments. The state tax rate varies from 1% to 13.3% based on your tax bracket. The federal tax rate depends on whether the gains are short-term (taxed as ordinary income) or long-term (based on the tax bracket).