How high are capital gains taxes in California?

When someone makes an investment, they obviously hope it will end up making them money. Otherwise the investment would be meaningless. If you increase your net worth through investments, however, you’ll likely have to pay taxes to your state and federal government. These are called capital gains taxes, and they don’t work exactly like taxes on other income. While the federal capital gains tax is often in the news and subject to political debate, there are also capital gains taxes assessed at the state level.

If you live in California, consider working with a financial advisor who can help you plan for these taxes.

What is Capital Gains Tax?

Capital gains tax is that assessed on money earned from an investment, as opposed to wages or salaries. Those earnings are usually taxed through a standard income tax, which most people encounter on every paycheck they receive.

In some areas, capital gains are treated differently depending on how long the investor has held the business before the sale. These distinctions are generally split between short term (less than a year) and long term (at least a year).

Short-term capital gains tax is levied on money earned from investments held by the investor for less than one year. These are often higher, due to their rapid turnaround. Federally, they’re taxed as regular income which, depending on your income level, could leave you paying more than 20%.

When someone holds an asset for more than a year, long-term capital gains tax generally applies. The federal long-term capital gains tax is lower than both its short-term counterpart and income tax rates. This is also true for some states, as there may be a tax bracket system where the rate is higher as the money you earn increases. In some other places, these earnings may be taxed at a flat rate.

California Capital Gains Tax

Unlike the federal government, California does not distinguish between short-term and long-term capital gains. Tax all capital gains as income, using the same rates and brackets as regular state income tax.

The story continues

The table below shows the tax rates that apply to both income and capital gains in California:

California Capital Gains Tax Rates Rate Single Married Filing Jointly Married Filing Separately Head of Household 1% $0 – $8,932 $0 – $17,864 $0 – $8,932 $0 – $17,864 2% $8,933 – $21,175 $17,865 – $42,350 $8,933 – $21,175 $17,865 – $42,353 4% $21,176 – $33,421 $42,351 – $66,842 $21,176 – $33,421 $42,354 – $54,597 6% $33,422 – $46,394 $66,843 – $92,788 $33,422 – $46,394 $54,598 – $67,569 8% $46,395 – $58,634 $92,789 – $117,268 $46,395 – $58,634 $67,570 – $79,812 9.3% $58,635 – $299,508 $117,269 – $599,016 $58,635 – $299,508 $79,813 – $407,329 10.3% $299,509 – $359,407 $599,017 – $718,814 $299,509 – $359,407 $407,330 – $488,796 11.3% (plus 1% for income over $1,000,000) $359,408 – $599,012 $718,815 – $1,198,024 $359,408 – $599,012 $488,797 – $814,658 12.3% (plus 1% for income over $1,000,000) $599,013+ $1,198,025+ $599,013+ $814,659+ How the federal capital gains tax works

The federal government taxes both short-term and long-term capital gains. Short-term capital gains are taxed like any other income, as follows:

Federal Short Term Capital Gains Tax Rates Rate Married Single Married Jointly Filed Separately Head of Household 10% $0 – $9,950 $0 – $19,900 $0 – $9,950 $0 – $14,200 12% $9,951 – $40,525 $19,901 – $ 81.050 $ 9.951 – $ 40.525 $ 14.201 – $ 40.525 $ 19.901 – $ 81.050 $ 9.951 – $ 40.525 $ 14.201 – $ 422% – $86,375 $81,051 – $172,750 $40,526 – $86,375 $54,201 – $86,350 24% $86,376 – $164,925 $172,751 – $329,850 $86,376 – $164,925 $86,351 – $164,900 32% $164,926 – $209,425 $329,851 – $418,850 $164,926 – $209,425 $164,901 – $209,400 35% $209,426 – $523,600 $418,851 – $628,300 $209,426 – $314,150 $ 209.401 – $ 523.600 37% $ 523.601+ $ 628.301+ $ 314.151+ $ 523.601+

Long-term capital gains, meanwhile, are taxed at 0%, 15% or 20%, based on the total capital gains. The federal long-term capital gains tax schedule is as follows:

Federal Long-Term Capital Gains Tax Rates Rate Single Married Filing Jointly Married Filing Separately Head of Household 0% $0 – $40,400 $0 – $80,800 $0 – $40,400 $0 – $54,100 15% $40,401 – $445,850 $80,801 – $501,600 $40,401 – $250,800 $54,101 – $473,750 20% $445,851 + $501,601+ $250,801+ $473,751+

President Joe Biden has proposed raising the capital gains tax for the highest incomes. Biden’s proposal would bring it down to 39.6%, essentially taxing it as regular income. At the time of writing, this proposal has yet to become law.

Comprehensive California Tax Framework

California is generally considered a high tax state and the numbers back it up. There is a progressive income tax with rates ranging from 1% to 13.3%, which are the same rates that apply to capital gains. The Golden State also has a 7.25% sales tax, the highest in the country. With the addition of local sales taxes, the sales tax rate in some municipalities can go up to 10.25%.

California property taxes cannot exceed 1% by law. There are no inheritance taxes or inheritance taxes.

Bottom line

California taxes capital gains at the same rate as regular income. In turn, the money earned over a year from investments will simply be added to the person’s taxable income. Californians are also subject to federal capital gains taxes, which vary depending on whether the gains come from short-term or long-term investments. In short, you’ll want to plan things out when investing as a California resident, or you could end up getting hit hard at the state and federal levels.

Investment tips

• Capital gains taxes can be confusing and professional advice can be very helpful. Fortunately, finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool connects you with up to three financial advisors serving your area in five minutes. If you’re ready to be matched with local consultants, get started now.

• It’s important to think ahead when it comes to investing. Use the SmartAsset investment calculator to get an idea of ​​what your portfolio might look like over the years.

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