Wondering what you’ll actually owe—and how to pay less? This definitive California capital gains guide delivers 2025 rates, primary residence rules, a clear step-by-step calculator, 1031 strategies, and quick answers so you can plan your next move with confidence.
How California Taxes Capital Gains (the quick answer)
California does not have a special capital gains rate. All capital gains—short or long term—are taxed as ordinary income at the same rates as your other taxable income. Your marginal California bracket is the key driver of how much state tax you will owe on a sale.
The top regular California bracket is 12.3%, and there is an additional 1% Mental Health Services Tax on taxable income over 1,000,000 dollars. In practice, that makes the top effective state rate 13.3% on the portion above 1,000,000 dollars. Because the tax is progressive, your actual bill on any single sale depends on where the gain lands across the brackets and how much other income you have that year.
Short term vs long term: does it matter in California?
At the state level, no. California treats both short and long term gains as ordinary income. That keeps the state calculation straightforward and emphasizes your total taxable income for the year, not just how long you held the asset.
At the federal level, it does matter. Long term gains (assets held more than one year) can get lower federal rates and may also be subject to the 3.8% Net Investment Income Tax for higher income households. When planning a sale, evaluate the combined federal plus state result, not just one side.
California Capital Gains Tax Rates in 2025
California uses a progressive income tax system with nine ordinary income brackets, and those same brackets apply to capital gains. For 2025 planning, think in ranges rather than a single number, because each additional dollar of income can push part of your gain into a higher bracket.
This means two things. First, a 10,000 dollar gain for someone in a mid level bracket might face a marginal state rate around the middle of the schedule, while a large real estate or business sale could push a portion of your income into the highest bracket. Second, if your taxable income after deductions exceeds 1,000,000 dollars, the extra 1% surcharge applies to the amount over that threshold regardless of whether that income is wages, business income, or capital gains.
Key takeaway: when people ask what are california capital gains tax rates, the accurate answer is that California taxes capital gains at ordinary income rates from 1% to 12.3%, plus an extra 1% on taxable income over 1,000,000 dollars. Bracket thresholds adjust annually.
California Capital Gains Calculator (Step By Step)
You can estimate your california capital gains tax with this simple framework. It will not replace software or a CPA, but it is a reliable way to ballpark the state piece before you make a move.
- Start with California taxable income before the gain. This is your federal AGI adjusted for California differences, minus California deductions.
- Add your capital gain to get a new total. California does not separate capital gains from other income, so your gain stacks on top and can spill into higher brackets.
- Compute the tax on the new total, then subtract the tax on the pre gain total. The difference approximates the state tax attributable to the gain.
- If your taxable income exceeds 1,000,000 dollars, add 1% of the excess. This millionaire’s tax sits on top of the normal brackets.
- Remember the federal side. Long term gains may qualify for lower federal rates, and higher income households may owe the 3.8% NIIT. Your after tax result is the sum of federal and state calculations.
Examples (quick math)
Example A (long term stock gain): A single filer expects 180,000 dollars of California taxable income before a 40,000 dollar long term gain. If the last dollars of that gain fall in a bracket around 9.3%, the state tax attributable to the gain is roughly 3,720 dollars. The exact figure depends on your deductions and how the gain straddles the bracket thresholds.
Example B (high earner real estate sale): A married couple projects 1,025,000 dollars of California taxable income including a 200,000 dollar gain. Beyond the normal bracket tax, the extra 1% applies to the 25,000 dollars over the 1,000,000 dollar threshold, another 250 dollars, plus the federal long term capital gains tax and possibly the 3.8% NIIT.
When you are ready to run numbers, visit our 1031 calculators page to explore tools that help you estimate scenarios before you commit to a sale or exchange.
- Estimate potential California capital gains tax based on income, gain amount, and bracket assumptions.
- Model 1031 exchange timelines and see how identification and closing windows affect outcomes.
- Evaluate potential boot, basis adjustments, and the impact of depreciation recapture on a sale.
- Compare selling in different tax years to see how timing can change your after tax result.
Use these calculators alongside the step by step method above to validate assumptions and to discuss options with your tax professional.
Primary Residence Exclusion
Selling your home. California generally follows the federal primary residence exclusion, which lets many sellers avoid paying state income tax on a large portion of their gain. That is a big deal given that California taxes capital gains as ordinary income.
Exclusion limits
- Single filers can exclude up to 250,000 dollars of gain.
- Married filing jointly can exclude up to 500,000 dollars of gain.
These caps apply to the gain, not the sales price. Many homeowners in California markets still have taxable gain after the exclusion, so run the numbers carefully.
Eligibility: ownership, use, and timing
To qualify, you generally must meet both tests within the five years before the sale.
- Owned the home for at least two years.
- Used it as your principal residence for at least two years.
You generally cannot use the exclusion more than once every two years. Keep proof of occupancy such as identification, voter registration, or utility bills in case you need to substantiate the use test.
Partial exclusions for life happens moments
If you do not meet the full two out of five requirement, you may still get a partial exclusion when the sale is due to certain changes in circumstances such as job relocation, health reasons, or other unforeseen events. The allowed exclusion is prorated based on how long you lived in the home and the reason for selling.
Prior rental use, home offices, and depreciation recapture
If you claimed depreciation for periods the property or a portion of it was used as a rental or home office, that depreciated amount cannot be excluded. It is recaptured on sale and taxed separately. Keep those records handy when building your california capital gains calculator estimate.
Nonqualified use can trim the exclusion
Periods of nonqualified use, generally personal ownership while the home was not your main residence after 2008, can reduce the portion of gain eligible for exclusion. This mostly affects properties that spent meaningful time as rentals or second homes before becoming your primary residence.
Special situations to know
- Marriage or divorce can change eligibility and basis allocations, including whether you can use the 500,000 dollar exclusion when filing jointly.
- Surviving spouses may benefit from a step up in basis that reduces future taxable gain.
- Military or foreign service members may be able to suspend the five year lookback to help meet the tests.
Can I combine the exclusion with a 1031 exchange
In certain mixed use scenarios, such as a duplex where you live in one unit and rent the other, you may apply the primary residence exclusion to the residence portion and use a 1031 exchange to defer gain on the investment portion. Each side requires careful allocation of basis, improvements, and sales proceeds.
1031 Exchanges and California Claw Back Rules
A California 1031 exchange lets you defer federal and California capital gains when you exchange investment or business real property for like kind property. For many California owners, this is a powerful way to manage a large gain while staying invested in real estate.
California follows federal deferral rules, but it also keeps track of California source gain when investors exchange into out of state property. If you later dispose of the replacement property in a taxable transaction, California expects you to recognize the deferred California source gain. Ongoing reporting may be required until the deferred gain is recognized.
- Work with a Qualified Intermediary and a California savvy tax professional when planning tight timelines and replacement property identification.
- Keep meticulous records of basis, boot, depreciation, and any California source amounts so future filings are clean and defensible.
Strategies to Manage Capital Gains Tax
Because the california capital gains tax rate equals your ordinary income rate, the year by year timing of income and deductions can be just as important as the size of the gain. Use the ideas below to plan before you sell.
Timing large sales and stacking income smartly
Two identical sales can produce different tax bills depending on the year. If you control the timing, consider closing in a year when your other income is lower to keep more of the gain in lower brackets. Coordinate with bonuses, business income, retirement conversions, or option exercises.
Quick checklist
- Estimate your pre gain taxable income.
- Layer in the projected gain using a simple california capital gains calculator model.
- Explore shifting deductible expenses or income where appropriate across tax years.
Tax loss harvesting for investors
Realize capital losses from underperforming positions to offset gains. Watch the wash sale rule on repurchases, and be mindful of your overall asset allocation so you harvest losses without derailing your long term plan.
1031 exchanges for investment or business property
For non primary residence real estate, a 1031 exchange can defer both federal and California tax by reinvesting into like kind property via a Qualified Intermediary. Exchanges are deadline driven and detail sensitive. If you move replacement property out of California, expect ongoing state reporting to track California source gain until it is recognized.
Installment sales
Where feasible, structuring a sale as an installment can spread gain and the associated California tax over multiple years. This may help you avoid higher brackets in a single year. Not all transactions qualify, and depreciation recapture is not eligible.
Charitable strategies
- Donate appreciated assets held more than one year to avoid capital gains and claim a charitable deduction subject to AGI limits.
- Use donor advised funds to bunch deductions in a high income year while granting to charities over time.
- Consider charitable remainder trusts to create an income stream and defer recognition of gain at the trust level.
Basis management and recordkeeping
Keep detailed records of acquisition costs, capital improvements, and selling expenses. A well documented higher adjusted basis lowers your taxable gain dollar for dollar and is often the most straightforward way to reduce tax.
Final Word for California Investors
California’s rules are simple on the surface, but the real world bill depends on where your gain lands across the brackets, whether you cross the 1,000,000 dollar threshold, whether the primary residence exclusion applies, and how the federal side interacts with your state result. If you are planning a sale or considering a 1031 exchange, model scenarios early and use the calculators to turn estimates into a clear plan.
Frequently Asked Questions
What is California’s capital gains tax rate
California does not have a separate capital gains rate. Gains are taxed as ordinary income at 1% to 12.3%, plus an additional 1% on taxable income above 1,000,000 dollars. Your marginal bracket determines the state tax on your last dollar of gain.
How much capital gains tax in California will I pay
Multiply the portion of your gain that falls in your marginal California bracket by that bracket rate, then add 1% if your total taxable income exceeds 1,000,000 dollars. Remember to model the federal side as well, including potential long term rates and the 3.8% NIIT.
How is capital gains tax calculated in California
California adds your gain to your taxable income, applies progressive brackets, and if applicable assesses the 1% surcharge on taxable income over 1,000,000 dollars. There is no state distinction between short and long term gains.
What is the California capital gains tax rate for 2025
For 2025, California continues to tax capital gains as ordinary income at 1% to 12.3%, with the 1% surcharge on taxable income above 1,000,000 dollars. Bracket dollar thresholds are adjusted annually, so check current year tables when estimating a specific sale.
What are California capital gains tax rates on real estate
There is no special real estate rate. Your gain from selling California investment property is taxed at ordinary rates. A properly executed 1031 exchange can defer the tax, with ongoing state reporting if your replacement property is outside California.
Does the primary residence exclusion apply in California
Yes. California generally follows the federal rule. Up to 250,000 dollars of gain for single filers or 500,000 dollars for married filing jointly can be excluded if you meet the ownership and use tests for two of the last five years. Depreciation taken for rental or home office use is not eligible for exclusion.
