Capital Gains Tax Rate in California (2022): Long & Short-Term

Capital Gains Tax Rate in California

The capital gains tax rate in California for 2022, unlike federal capital gains taxes, do not depend on whether it’s a short-term or long-term gain. This California capital gains tax rate is applied to the profit you make from selling certain assets, like stocks, bonds, mutual funds, and real estate. The capital gains tax rate for gains have a rate in line with normal California income tax laws (1% – 13.3%).

These California capital gains tax rates can be lower than the federal capital gains tax rates, which are 0%, 15%, and 20% for long-term gains (assets held for more than a year). The difference is that the federal capital gains tax rates only apply to taxable income above $425,800 (for single filers) or $481,601 (for joint filers).

2022 CA Capital Gains Rate vs Previous Years

Since California taxes capital gains as regular income, the tax rates themselves don’t change much. Instead, the criteria that dictates how much tax you pay has changed over the years. For example, in both 2018 and 2022, long-term capital gains of $100,000 had a tax rate of 9.3% but the total income maxed out for this rate at $268,749 in 2018 and increased to $312,686 in 2022.

CA vs Other Large U.S. States

Now let’s compare the California capital gains tax to other large states, such as Texas, Florida, and New York. The state of Texas has no state capital gains tax. New York’s capital gains tax rate is 12.70%, and Florida’s capital gains tax rate is between 0% and 20%. It’s important to note that the federal capital gains tax rates are the same in all states.

While California capital gains tax might be easier to understand because it is taxed as regular income, it’s worse on your wallet than other states. In fact, it can be quite expensive for some to pay capital gains on their many investments when compared to a state like Texas.

How the California Capital Gains Tax Works

The capital gains tax in California is applied to the profit you make from selling certain assets, like stocks, bonds, and real estate. The rate could vary because it is taxed as regular income. To calculate your capital gains taxes in California, you’ll need to know your marginal tax bracket.

The California capital gains tax is imposed on the sale or exchange of capital assets located in California. The tax is calculated using the following formula:

Capital Gain = Sale Price of Asset – (Adjusted Basis + Selling Expenses)

For example, let’s say you bought a house in Los Angeles for $500,000 and sold it later for $700,000. Your capital gain would be $200,000 ($700,000 – $500,000). If you had selling expenses of $20,000 (e.g., real estate commissions), your capital gain would be reduced to $180,000. And if your adjusted basis was $250,000 (e.g., purchase price + capital improvements), your capital gain would be further reduced to $130,000.

Calculating the CA Capital Gains Tax

The California capital gains tax is calculated by taking the sale price of the asset and subtracting the cost basis. The cost basis is what you paid for the asset plus any improvements you made to it. For example, if you bought a stock for $100 and it increased in value to $150, your capital gain would be $50. If you sold a piece of real estate for $500,000 and your cost basis was $400,000, your capital gain would be $100,000.

The capital gains tax rate that you pay on your capital gain depends on your taxable income. You should use your normal tax bracket rate to calculate how much of the gain you’ll be taxed on (between 1% – 13.3%).

Short-Term vs Long-Term Capital Gains Tax Rate in California

California doesn’t differ in the capital gains tax depending on how long you hold the asset, unlike the federal rate. Since capital gains in California are taxed as ordinary income, everyone is taxed at the normal income brackets. As previously mentioned, these tax brackets are between 1% and 13.3%.

With the federal capital gains tax rate, the capital gains tax rate could differ depending on how long you hold your asset before selling. The long-term capital gains tax rates only apply if you hold an asset for longer than a year. This benefits individuals who want to hold on for assets for longer periods of time.

California Capital Gains Tax on Real Estate

The California capital gains tax on real estate is different than the normal capital gains tax because of the potential exemption. The tax is calculated by taking the purchase price of the property, subtracting any improvements that have been made to it, and then subtracting the selling price. Those selling homes they lived in might be excluded from paying the tax altogether.

Any single homeowners can deduct up to $250,000 of gains from the sale of their property as long as they meet the requirements, such as living in the home for at least 2 of the last 5 years. Any couples can exclude a gain of up to $500,000. This benefits individuals who spent time and money living in and improving their property.

Bottom Line

In conclusion, it’s important to understand the California capital gains tax and how it works. The capital gains tax rate in California for 2022 falls in line with the normal income tax brackets throughout the state. This California capital gains tax rate is applied to the profit you make from selling certain assets, like stocks, bonds, and real estate.