Capital Gains Tax in California

When you sell something like stocks, a house, or even artwork for more than you paid for it, that extra money is called a capital gain. And in California, just like everywhere else, the government wants a slice of it. Welcome to the world of capital gains tax — but don’t worry, we’re going to break it down in a way that actually makes sense.

Whether you’re new to investing or just sold something big, understanding how capital gains tax works in California could save you a lot of cash (and headaches) in 2025 and beyond.

Let’s dig in.

What Is Capital Gains Tax?

Capital gains tax is the tax you pay when you sell something (like an investment or property) for a profit. Pretty simple, right?

In California, your capital gains are subject to both federal and state capital gains taxes. That means you’re paying twice: once to Uncle Sam and once to the Golden State.

But before you panic, not all gains are treated the same. You’ll hear a lot about short-term gains and long-term gains, and the distinction between short-term and long-term matters a lot when it comes to how much tax you owe.

California Capital Gains Tax in 2025

Here’s the kicker: California capital gains tax doesn’t have a special lower rate like the federal government does. Instead, your gains are taxed as ordinary income.

That means your capital gains could be taxed as high as 13.3% depending on your income tax bracket. Yep, the same rate you pay on your paycheck.

So while the 2025 capital gains tax at the federal level might have special rates, California just treats your gain like any other income.

Short-Term vs. Long-Term: Why It Matters

If you hold onto an investment for one year or less before selling, it’s considered a short-term capital gain.
Short-term capital gains are taxed at the ordinary income tax rate — meaning you could get hit hard at both the state and federal levels.

On the other hand, if you hold your investment for more than one year, it becomes a long-term capital gain. Long-term capital gains are gains that usually qualify for lower tax rates for long-term investments (at least federally).

Here’s the big idea:
Short-term tax = higher rates.
Long-term = lower rates than short-term.

At the federal level, tax rates for long-term capital gains are 0%, 15%, or 20% depending on your income. There’s also a sneaky extra 3.8% net investment income tax that can apply if you’re a higher earner.

How Capital Gains Are Calculated

Let’s say you sell a painting you bought for $1,000 for $5,000. The difference between the sale price and what you originally paid — $4,000 — is your capital gain.

When it comes to taxes, the formula is basically:

Sale price – Purchase price (plus improvements or expenses) = Capital gain or lossIf you sell for less than you paid, you have a capital loss instead, which can actually help offset gains and lower your tax bill.

Selling a Capital Asset: What Counts?

When you sell a capital asset, it could be almost anything you invested in:

• Stocks

• Bonds

• Real estate (excluding your primary home if you qualify for an exemption)

• Precious metals

• Art or collectibles

• Cryptocurrency

Basically, if you bought it as an investment and then sold it, you’re probably looking at a capital gain on the sale or a capital loss.

Capital Gains and Losses: Offsetting Each Other

Good news! If you had a rough year and your investments flopped, you can use capital losses to offset capital gains.

For example:

• If you made $10,000 selling stocks (capital gain) but lost $7,000 on others (capital loss), you only pay tax on the $3,000 difference.

Even better? If your net capital loss for the year is more than your gains, you can deduct up to $3,000 from your taxable income on your tax return.

If your losses are even bigger, you can roll the extra over to future years. Tax break city!

How Federal and State Capital Gains Taxes Work Together

At the federal level, you get those nice lower tax rates for long-term gains. But California? Nope. Here, capital gains are treated the same as regular income.

That means your overall tax picture looks something like this:

• Federal capital gains tax rates (0%, 15%, or 20% plus maybe the 3.8% net investment income tax)

• California state income tax on the gain (up to 13.3% depending on your income)

That’s why understanding gains tax rates and brackets is super important before you sell anything big.

How to Lower Your Tax Bill on Capital Gains

Nobody likes handing over more money than necessary. Here are smart ways to lower your tax legally:

1. Hold Investments Longer

Since short-term capital gains are gains taxed like regular income, holding investments longer than a year moves you into the lower rates than short-term zone at the federal level.

2. Time Your Sales

Pay attention to your tax year. If you made a lot of money already this year, waiting until January could land you in a lower tax bracket for next year’s taxes.

3. Offset Capital Gains With Losses

Offset gains with losing investments. Selling losers to cut your taxable gain is called “tax-loss harvesting” and it’s a powerful tax planning move.

4. Use a Capital Gains Tax Calculator

Plugging your numbers into a capital gains calculator can help you plan ahead and see your potential capital gains tax liability before you make a move.

5. Defer Capital Gains

If possible, defer capital gains into a later year — especially a year you expect to have lower income.

Real Estate and Your Home

If you’re selling your main home, you might not have to pay capital gains at all, thanks to the home sale exclusion.

Here’s the deal:

• If you lived in the home for at least 2 out of the last 5 years, you can exclude up to $250,000 of gain ($500,000 if married) from your taxes.

• But if you don’t qualify, you might owe taxes based on the basis in your home — meaning what you originally paid, plus improvements.

Don’t forget: you could still face a state tax bill even if you dodge federal taxes.

Managing Capital Gains Tax: Strategies for 2025

If you expect to have big gains in 2025, it’s smart to start managing capital gains tax now. This could mean:

• Selling some investments now to lock in today’s rates

• Waiting to sell depending on election-year tax changes

• Looking into opportunity zones or 1031 exchanges for real estate to defer capital gains

Understanding the tax implications of every move can save you thousands — or more.

Important Notes About How Gains Are Taxed

• Capital gains are taxed as ordinary income in California.

• Gains may be taxed differently depending on if they’re short- or long-term federally.

• Gains are gains on assets you sell for more than you paid.

• Short-term capital gains are gains taxed higher, so plan accordingly.

And remember, you owe capital gains taxes whether you take the money out or not — just the act of selling triggers taxes.

Final Thoughts: Stay Smart, Pay Less

At the end of the day, the goal is simple: lower your tax burden legally, keep more money in your pocket, and avoid surprises at tax time.

Whether you’re selling stocks, flipping houses, or cashing out crypto, understanding how capital gains tax works is one of the best ways to get ahead.
Good tax planning today means a smaller check to the IRS and the California Franchise Tax Board tomorrow.

Capital gains taxes are levied no matter what — but smart moves can make sure you pay the least possible.

Stay sharp. Know the rules. And when in doubt, don’t be afraid to use a professional to double-check your numbers, especially when dealing with federal tax, earned income tax, and the maze that is the California tax system.

👉 “Want to know more about filing corporate tax in California? Click here to learn more!