How Much is California State Tax on Selling a House?

The average sale price of a home in California is expected to hit a staggering $860,300 in 2024. That’s a lot of dough, and if you’re fortunate enough to own a piece of California real estate, then selling a house could lead to a big payday. That may sound exciting, but that’s before both the Golden State and Uncle Sam take a bit out of your profits.

Along with closing fees, realtor costs, and the cost of getting your home shipshape, the state government could also hit you where it hurts. However, it is important to take a closer look at California state tax before you decide that a property sale is more hassle than it’s worth.

We’re going to take a closer look at the biggie – capital gains tax – plus the smaller documentary transfer tax. We’ll see how each affects California homeowners looking to move on.

Capital Gains Tax in California

Anyone who profits when they sell a home in California may have to pay the state some capital gains tax. Capital gain refers to the difference between the purchase and sale price of a home. You will never have to pay capital gains tax on the full sale price of your home.

For example, if you bought your home for $100,000 back in 2002 and decide to sell it for $300,000 in 2024, you would have a capital gain of $200,000.

Like the IRS, California allows you to exclude a certain amount of the capital gain if the home was your principal residence. To qualify as such, you must have owned the home for at least two years. Additionally, you must have lived in it for at least two of those years.

When You Do Not Have to Declare Your Gain

California allows for an exclusion if your gain is below a set threshold and meets other criteria. In addition, there are different reporting rules for individuals and married couples/registered domestic partners (RDPs).

Individuals do not have to pay capital gains tax on the sale of California real estate when all of the following criteria apply:

Your gain (not the sale price) was less than $250,000
You can not have used the exclusion in the previous two years
You have owned and lived in the home for a minimum of two years

If any one of these does not apply, you will have to pay capital gains tax.

Married couples and RDPs can benefit from an exclusion if the following applies:

The gain was below $500,000
The couple filed a joint return for the year of the sale
Either spouse/RDP fulfills the two-out-of-five-year ownership requirement
Both spouses/RDPs meet the two-out-of-five-year occupancy requirement
Neither spouse/RDP used an exclusion from the sale of another home in the last two years

If you do not meet any of these criteria, you may have to pay capital gains tax.

Reducing Your Capital Gains Tax Bill

A capital gains tax bill can leave you in tax shock. However, there are some strategies to reduce or eliminate your tax liability.

One is a 1031 exchange. This may allow you to sell an investment property and buy another of equal or greater value without paying capital gains tax. A Deferred Sales Trust (DST) may be another option.

Federal Capital Gains Tax

In this article, we’re only focusing on California state tax. But it’s important to factor in federal capital gains taxes as well. In many cases, you may be able to benefit from principal residence and other exclusions and not have to pay any tax.

If you do, there are three levels of federal capital gains tax: 0%, 15%, and 20%. These levels vary depending on your taxable income. Crunch the numbers and talk to a tax professional for specific advice on your situation.

California Documentary Transfer Tax

Counties and cities in California impose a Documentary Transfer Tax on documents that convey real property. Simply put, to transfer your home to another party, you have to pay tax.

This is made up of two parts:

County rate: Set at $1.10 per $1,000 of the sales price
City rate: This varies from nil to several dollars per $1,000 or a percentage rate based on the sale price

While this is usually a relatively low tax compared to other closing costs, it’s still an important consideration. If you decide to sell a home for cash, talk to the homebuying service about who will pay these costs.

Paying Taxes on an Inherited Home

If a loved one is kind enough to leave you their home in their will, there’s a strong possibility you’ll be looking to sell it. Selling a house for cash is a hassle-free way to get your money fast. However, it raises the question of whether you will have to pay estate taxes or any other taxes on these funds.

The good news is that the federal government does not charge estate taxes on most estates. As of 2024, the exclusion stands at $13,610,000. We’re guessing that this will apply to most people reading this!

Estate Taxes in California

There are no estate taxes in the State of California, which just leaves the question of capital gains tax. This will only be charged on any increase in value from the date you inherited the house until the date you sell it. For example, if the house was worth $250,000 when you inherited it and $270,000 when you sold it, the taxable gain would be $20,000.

Whether you pay capital gains tax on this and how much would depend on how long you have owned it, the exclusions mentioned above, and your personal tax rate.

Selling a House Just Got Easier

Selling a house for cash may not eliminate your tax burden, but it can reduce practically every other cost. Sell your home to Premier Property Buyers, and you will pay no commissions, closing fees, inspection, appraisal costs, or appraisal-required repairs. You will get an immediate guaranteed cash offer and could close within a week!

We realize that selling a house is a bit of a decision. That’s why we’re upfront about our offer, giving you time to crunch the numbers to see if they work for you. If not, you can walk away with absolutely no obligation.

Why not find out how much you could get for your home? Learn more and fill out our online form for a fair offer today!