The purpose of putting your money aside to create an investment portfolio is to make more money and hopefully reach your financial goals faster than you think.
You know what? When you finally win big on your investment, something else is waiting for you- taxes. We know that taxes seem to rob people of their happiness, especially if you live in California. But how much are capital gains taxes in California? Is it any different from the federal capital gains tax? Read along to discover more.
What Is Capital Gains Tax?
Capital gains tax is a tax levied on the profit you earn from the sale of assets such as real estate, bonds, stocks, and other investments. When you sell an asset at a higher rate than its original price, the difference between the original cost and the sale price is regarded as a capital gain. However, the rate at which the capital gain is taxed depends on several factors, such as the taxpayer’s income level and the duration the asset was held.
Capital Gains Tax In California
California imposes capital gains taxes at both federal and state levels. While the federal government sets its capital gains tax rates, California has its own tax rates and regulations that taxpayers must adhere to.
Unlike the federal level, where short-term gains are taxed as regular income, California makes no distinction between long-term and short-term capital gains. In California, all capital gains are taxed as income using the same rate as similar rates as the state income tax rates.
California has ten tax brackets: 1%, 2%, 4%, 6%, 8%, 9.3%, 10.3%, 11.3%, 12.3%, and 13.3%. At the higher threshold, a single filer could pay up to 13.3% on capital gains that exceed $1,000,000, but a married couple filing jointly could pay up to 13.3% on capital gains over $2,000,000.
At the lower threshold, if you are a single filer, you are expected to pay up to 1% on capital gains between $0 to $10,412, but if you’re a married couple filing jointly, you are expected to pay 1% on capital gains ranging from $0 to $20,824.
How To Calculate Capital Gains Tax In California
If you are a taxpayer in California, you can use this formula to calculate your capital gains taxes:
- Determine your holding price: The duration you’ve held your asset before selling it is key to determining your capital gains tax rate. Assets held over a year are regarded as long-term capital gains, while assets held for less than or up to a year are regarded as short-term capital gains.
- Calculate your cost basis: The cost base of your asset is the original purchase price plus the expenses incurred, including fees and commissions, as well as adjustments for asset improvement or depreciation.
- Calculate your capital gains: After determining your sale price and cost basis, deduct the cost basis from the sales price to get the capital gain.
- Apply your tax rate: Once you receive the capital gain, apply the appropriate tax rate. In California, capital gains tax is calculated between 0% and 13.3%, depending on your income level.
- Consider additional factors: Some capital gains, such as those from the sale of real estate, may be subject to additional exemptions or taxes. Understanding the specifics of these rules and exemptions is essential when calculating and reporting your capital gain tax bill.
Take Home
While capital gain taxes can significantly reduce your bottom line, there are also several ways to reduce these taxes. One of the best ways to do so is by consulting an expert tax strategist like Tax Goddess to help you take advantage of tax loopholes with IRS-approved tax strategies.
From creating personalized tax strategies to breaking down every step in plain language so you can understand, Tax Goddess is the best hands to work with. Want to discover more about our billion-dollar tax strategies? Book a free consultation call with the Tax Goddess Team today.
