California Capital Gains Tax in 2025: The Ultimate Guide
May 13, 2025
When most people think of California, capital gains tax rates don’t automatically spring to mind.
Usually, people picture sunshine, beaches and that famously easy-going lifestyle.
After all, depending on where you live, California’s year-round warmth, minimal rainfall and low humidity are hard to beat.
For lovers of the great outdoors, California is a slice of paradise, offering everything from surf beaches to mountain hikes and world-class ski resorts.
Throw in the magic of Disneyland, the celeb culture of Los Angeles and the energy of San Francisco, and it’s not hard to see why California has proven irresistible to people from around the world.
So why, despite all this, are hundreds of thousands of people leaving the state? Between 2023 and 2024 alone, 239,575 residents moved out.
One word – taxes.
Californians face a punishing combination of federal income tax, high state and sales taxes, and that’s on top of trying to cope with the cost of living – the third most expensive state in the US.
And that’s before you consider the US itself. It’s one of the only two countries that impose citizenship-based taxation, meaning wherever you go or whatever you do, you will need to report your assets back to the US and typically pay taxes on them.
For many taxpayers, California boils down to ‘damned if you do and damned if you don’t’.
But it doesn’t have to be this way. You have options, and they don’t all require you to relocate to another state with lower taxes.
What is Capital Gains Tax?
Capital gains tax is a tax levied on the profit from the sale of an investment. It can be levied on the sale of stocks, real estate, precious metals and other assets.
In essence, capital gains tax is levied on the money earned from investment profits rather than wages and salaries. The US imposes federal capital gains taxes, and on top of that, based on whichever state you live or work in, you can also be subjected to a state capital gains tax.
Short-Term v Long-Term Capital Gains Tax
Typically, capital gains are divided into two categories – long–term capital gains and short–term capital gains. You may be subjected to different capital gains tax rates based on how long you hold your assets.
Long-term and short–term capital gains taxes are broken down in the following way:
- Long-term capital gains taxes are levied on profits from the sale of an asset held for more than a year.
- Short-term capital gains taxes are levied on profits from the sale of an asset typically held for less than a year.
Your taxable income and filing status may influence your capital gains tax rate.
What is the Capital Gains Tax in California in 2025?
Each state has its own system and tax brackets for capital gains. Some states may levy a flat tax on a capital gain, while some may not impose it at all. The federal government imposes different tax rates depending on whether the assets were held long-term or short-term.
The federal government taxes short-term gains as regular income. Based on your taxable income, you may be liable to pay over 20% in taxes for assets held for less than a year.
On the other hand, the federal capital gains tax for long-term capital gains is less than ordinary income tax rates, and some individual states follow this method.
California taxes capital gains as income and makes no distinction between short and long-term gains. This means that in California, capital gains tax rates are similar to state income tax rates.
California Capital Gains Tax Brackets
California has nine tax brackets ranging from 1% to 12.3%. However, an additional 1% Mental Health Services Tax applies to income over US$1million, bringing the effective top marginal rate to 13.3%.
At the upper limit, a single filer can expect to pay 12.3% on capital gains over US$721,315 or more.
A married couple filing jointly can expect to pay 12.3% on capital gains over US$1,442,629 – though the extra 1% may be applicable if either spouse’s individual income exceeds US$1million.
At the lower end, single filers can expect to pay 1% on capital gains ranging from US$0 to US$$10,756, while a married couple filing jointly can expect to pay 1% on capital gains between US$0 and US$21,512.
These are the state tax brackets for single filers for 2024, reported in 2025:
- 1% on US$0 to US$10,756
- 2% on US$10,757 to US$25,499
- 4% on US$25,500 to US$40,245
- 6% on US$40,246 to US$55,866
- 8% on US$55,867 to US$70,606
- 9.3% on US$70,607 to US$360,659
- 10.3% on US$360,660 to US$432,787
- 11.3% on US$432,788 to US$721,314
- 12.3% on US$721,315 to US$999,999
- 13.3% on US$1,000,000 or more.
The California capital gains tax rates for those married filing jointly or a surviving spouse are:
- 1% on US$0 to US$21,512
- 2% on US$21,513 to US$50,998
- 4% on US$50,999 to US$80,490
- 6% on US$80,491 to US$111,732
- 8% on US$111,733 to US$141,212
- 9.3% on US$141,213 to US$721,318
- 10.3% on US$721,319 to US$865,574
- 11.3% on US$865,575 to US$1,442,628
- 12.3% on US$1,442,629 to US$999,000
- 13.3% on US$1,000,000 relating to an individual spouse.
How to Calculate California’s Capital Gains Tax
California taxpayers can use the following steps to calculate their capital gains taxes:
- Take your sale price
- Deduct selling expenses
- Write down your purchase price
- Calculate your basis: Deduct your purchase price from the sale price
- Calculate deductible depreciation
- When you deduct depreciation from the basis, you’ll get your gains
- Once you have your gains, multiply them by the California income tax rate.
Legally Reduce Your California Capital Gains Tax
The California tax code may not offer much leeway regarding capital gains depending on how long they’re held, but it’s not devoid of tax exclusions.
You may be eligible for the capital gains real estate tax exemption from the sale of residential real estate that’s used as a primary residence.
Taking advantage of the real estate tax exemption, a single taxpayer can save up to US$250,000, while married couples or registered domestic partners can save up to US$500,000.
To qualify, you must fulfil the following eligibility criteria:
- You must have lived in the home for two of the five years before the sale
- The profit from the house sale must net less than US$250,000
- You must not have claimed the exclusion in the past two years.
According to the Franchise Tax Board of California, the exclusion applies to a house, houseboat, condominium, mobile home, trailer or co-op apartment.
In particular cases, like the following, you may be eligible for a partial exemption if you could not live in the house for two years because:
- You had a medical condition
- There was a death in the family
- You needed to move because of your employment.
Moreover, you don’t pay California capital gains tax on home sale proceeds if you sell your home at a loss.
2025 Capital Gains Tax California: FAQs
Yes, California levies capital gains tax at progressive rates, similar to the state income tax brackets and rates.
There are nine tax brackets ranging from 1% on income up to US$10,756 (US$21,512 for married joint filers) to 13.3% on income exceeding US$721,315 (jointly US$1,442,629).
There are nine states that levy no state capital gains tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Wyoming, Washington and New Hampshire though things are complicated with the last two states. Also, Federal capital gains tax still applies.
Individuals with income from an investment portfolio may be subject to a Net Investment Income Tax (NIIT), which income includes interest, dividends, capital asset gains, and rental income. Both capital gains tax and net investment income tax apply to profits derived from investments. However, net investment income tax represents an additional obligation applicable not to those in a lower tax bracket but to high-income individuals subject to capital gains tax.
Yes, you can qualify for a tax exemption of up to US$250,000 (as a single filer) or up to US$500,000 (as a married couple) on real estate capital gains if you fulfil certain conditions.
You do not have to report California capital gains on a home sale if your gain was less than US$250,000, you have not used the exclusion in the past two years, and you owned and lived in the house for two years.
California is generally considered to be a high–tax state with income tax and capital gains rates ranging from 1% to 13.3%, as well as sales taxes that can be as high as 10.25% in some municipalities.
California taxes both long-term and short-germ capital gains as ordinary income. That means your capital gains are subject to the same progressive state income tax rates – ranging from 1% to 12.3%. If your income exceeds US$1million, an additional 1% Mental Health Services Tax applies, bringing the top effective rate to 13.3%
California’s income tax brackets range from 1% to 12.3%, with an extra 1% mental health tax for income over US$1 million. Your California income tax bracket depends on your income level and filing status.
Capital gains from real estate in California are taxed as regular income, with rates ranging from 1% to 13.3% based on your total income.
How to Pay Lower Taxes as a US Citizen
Despite the US’ worldwide tax regime extending to every corner of the globe, there are still strategic ways to legally reduce your tax burden as a US citizen.
From using exclusions to lower your federal tax liability to minimising or eliminating state tax exposure, a well-structured plan can make a significant different.
But while you can distance yourself from the Internal Revenue Service (IRS), you can’t hide. That’s why, for some, renouncing US citizenship is an increasingly popular choice.
Others choose to remain US citizens while pursuing tax-efficient strategies – living overseas, incorporating businesses abroad, and securing second residencies or strategies to protect assets and optimise their global lifestyle.
Whatever path you choose, the key is proper planning and precise execution.
At Nomad Capitalist, we help seven- and eight-figure entrepreneurs and investors build custom strategies through our proven, three-step process. You’ll get to keep more of your own money, accelerate your wealth faster protect your future.
With a global network of lawyers, accountants, estate agent experts and tax and company formation specialists, we bring real-world expertise to your personalised action plan. Discover how we do things here.
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