Tax Implications of Selling Your Home in California (2026 Guide)

Don't Let Taxes Eat Your Home Sale Profits

Selling a home in California can trigger multiple taxes that catch sellers off guard. Understanding these obligations before you sell helps you plan accordingly and keep more of your proceeds.

Disclaimer: This article provides general information only. Consult a tax professional for advice specific to your situation.

Federal Capital Gains Tax

The Primary Residence Exclusion If you've lived in your home as your primary residence for at least 2 of the last 5 years, you can exclude:

• **Single filers:** Up to $250,000 in capital gains
• **Married filing jointly:** Up to $500,000 in capital gains

How to Calculate Your Gain

Sale price - Adjusted cost basis = Capital gain

Your adjusted cost basis includes: - Original purchase price - Major improvements (kitchen remodel, new roof, additions) - Closing costs from the original purchase - NOT regular maintenance or repairs

Example: - Purchased in 2010 for $400,000 - Major improvements: $50,000 - Selling in 2026 for $850,000 - **Capital gain: $850,000 - $450,000 = $400,000** - Married couple exclusion: $500,000 - **Tax owed: $0**

If Your Gain Exceeds the Exclusion Gains above the exclusion are taxed at federal capital gains rates:

• **0%** for income under $47,025 (single) / $94,050 (married)
• **15%** for income $47,026-$518,900 (single) / $94,051-$583,750 (married)
• **20%** for income above those thresholds
• **3.8% Net Investment Income Tax** may also apply for high earners

California State Capital Gains Tax

California taxes capital gains as ordinary income. Unlike the federal government, California does NOT have a lower rate for capital gains. Your gain is added to your regular income and taxed at California's progressive rates:

• 1% to 13.3% depending on total income
• The top 13.3% rate kicks in at $1,000,000+ in income

For a married couple with $200,000 in regular income and $100,000 in capital gains (above the federal exclusion), the California tax could be $9,000-$10,000.

Los Angeles County Transfer Tax

When you sell real property in LA County, you pay a documentary transfer tax:

• **County transfer tax:** $1.10 per $1,000 of sale price
• **City transfer tax:** Varies by city

City Transfer Tax Rates (Selected LA-Area Cities): - **Los Angeles:** $4.50 per $1,000 (plus "Measure ULA" mansion tax of 4% on sales $5M-$10M, and 5.5% on sales $10M+) - **Santa Monica:** $3.00 per $1,000 - **Culver City:** $4.50 per $1,000 - **Inglewood:** $1.10 per $1,000 - **Long Beach:** $1.10 per $1,000

On a $750,000 home in LA city: - County tax: $825 - City tax: $3,375 - Total transfer tax: $4,200

Property Tax Prorations

At closing, property taxes are prorated between buyer and seller. If you've prepaid taxes for the full year but sell mid-year, you'll receive a credit for the unused portion.

Withholding Requirements

California (FIRPTA-equivalent) California requires buyers to withhold 3.33% of the sale price (or the gain amount, whichever is less) unless you qualify for an exemption. Most primary residence sellers qualify for an exemption by filing Form 593 at closing.

Federal FIRPTA Only applies to foreign sellers (non-U.S. residents). The buyer withholds 15% of the sale price.

Strategies to Minimize Taxes When Selling

1. Time Your Sale Ensure you meet the 2-out-of-5-year primary residence requirement before selling. If you're close, it may be worth waiting a few months.

2. Track All Improvements Every dollar you've spent on capital improvements increases your cost basis and reduces your taxable gain. Keep receipts for: - Kitchen and bathroom remodels - Roof replacement - New windows and doors - Room additions - Landscaping (major projects, not maintenance)

3. Consider a 1031 Exchange (Investment Property Only) If you're selling an investment property, a 1031 exchange allows you to defer all capital gains taxes by reinvesting in a like-kind property within specific timeframes.

4. Installment Sale Spreading the sale over multiple tax years through seller financing can keep you in a lower tax bracket each year.

5. Sell Before Losing Your Exclusion If you've moved out and are renting the property, your 2-of-5-year clock is ticking. Sell before you lose the primary residence exclusion.

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