This article discusses California capital gains tax in 2023, its rates, how its levied, and some tips to reduce your taxes legally.
The US is among the countries with the highest tax rates. Not only that, 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.
Moreover, as a US person, you’re subjected to taxes at the federal and state level. Some states are more tax-lenient than others, but California isn’t one of those.
Read this article if you want information about California’s capital gains taxes and how they’re levied. However, if you’re sick of annually rising tax rates, the government’s obsession with taxing the rich, and giving half your income away in tax money, Nomad Capitalist can help you.
We advise HNWI clients on acquiring personal and financial freedom through our holistic strategies. If you’ve had enough we’ll show you how can legally reduce your tax bill to zero or single digits. Yes, it’s possible. Don’t let anyone tell you otherwise. Contact us today to discover how.
California – State Overview
California is a US state along the Pacific Coast. It borders Oregon to the north, Nevada and Arizona to the east, the Mexican state of Baja California to the south, and has a coastline along the Pacific Ocean to the west.
With a population of 39,538,223, it is the most populous US state and the third-largest by area. The state’s capital is Sacramento, while Los Angeles is the most populous city. California’s economy is the largest state economy in the US. The state boasts diverse terrain and famous attractions like the Hollywood sign and the Golden Gate bridge.
What is Capital Gains Tax?
Capital gains tax is a tax levied on the profit from the sale of an investment. Capital gains tax can be levied on the sale of stocks, real estate, precious metals, etc.
In essence, capital gains tax is levied on the money earned of investment profits rather than wages/salary. That’s why they’re a different category than income taxes.
The US imposes federal capital gains taxes. In addition, based on the US state where you live or work, you can also be subjected to a state capital gain tax.
Short-Term vs. 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 Capital Gains Tax: 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 Tax: 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.
California Capital Gains Tax Rates in 2023
Each state has its own system and tax brackets regarding 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 US 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.
However, the federal capital gains tax for long-term capital gains is lesser than ordinary income tax rates. Some states also follow this scheme.
California is unlike the federal government in this regard. California taxes capital gains as income and makes no distinction between short or long-term gains. This means the California capital gains tax rates are similar to the California income tax rates.
California has nine tax brackets – 1%, 2%, 4%, 6%, 8%, 9.3%, 10.3%, 11.3% and 12.3%.
A single filer can expect to pay 12.3% on capital gains over $599,013, while a married couple filing jointly can expect to pay 12.3% on capital gains over $1,198,025.
Alternatively, single filers can expect to pay 1% on capital gains between $0 to $8,932, while a married couple filing jointly can expect to pay 1% on capital gains between $0 to $17,864.
How to Calculate Capital Gains Tax In California
Californian taxpayers can use the following formula to calculate their capital gains taxes.
- Write down 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 that by the California income tax rate.
How to Legally Reduce Your California Capital Gains Tax
Californian 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 if you own residential real estate (used as a primary residence).
Taking advantage of the real estate tax exemption, a single taxpayer can save up to $250,000, while married couples or registered domestic partners can save up to $500,000.
To qualify, you must fulfill 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 $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 capital gains taxes in California if you sell your home at a loss.
Choose Your Own Tax Rate
Sounds too good to be true? For some people (our clients), this is a reality.
Although there are US states (nine to be exact) that levy no state capital gains tax, you never need to feel that you can only go to nine places to reduce your taxes legally. You should go where you’re treated best. Sometimes, that can be another state. However, you’ll often discover that countries worldwide have far better and more exciting solutions to your tax problems.
With one additional residency or passport in your portfolio, you can conquer your taxes and choose to pay taxes wherever you want. Note, however, that as long as you’re a US citizen, you can’t get rid of US taxes without renouncing your citizenship, but you can certainly reduce them to a great deal.
Want to know how that can be done? Set up a call with us today, and let us help you go where you’re treated best.
California Capital Gains Tax in 2023: The Ultimate Guide FAQ
Yes, California levies capital gains tax at progressive rates, similar to the state income tax brackets and rates.
There are nine states that levy no state capital gains tax – Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Federal capital gains tax still applies.
Yes, you can qualify for a tax exemption up to $250,000 (as a single filer) or up to $500,000 (as a married couple) on real estate capital gains if you fulfill the following significant conditions (among other requirements):
It must be a primary residence.
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 $250,000.
You must not have claimed the exclusion in the past two years.
