How to Calculate Capital Gains When Selling Real Estate (Part I)
Below is a simple illustration of how a married couple would calculate their capital gains and taxes if they sold their primary home in California.
|Closing costs from selling home||-$100,000|
|Adjusted sales price||$1,200,000|
|Closing costs from purchasing home||$10,000|
|Adjusted cost basis:||$600,000|
|Capital gain ($1,200,000 – $600,000)||$600,000|
|Profit exclusion ($250K single, $500K married)||-$500,000|
|Adjusted capital gain||$100,000|
Depending on your income bracket, your combined Fed + CA tax rate will be between 25-35% which means on a $100,000 gain, your taxes will be $25,000 to $35,000.
The federal tax rate on long-term capital gains is 15%, 18.8%, or 23.8%. (There’s a 3.8% Obamacare investment tax if your income is over $250,000.)
CA tax rate is 9.3% to 13.3%. (CA does not have a lower long-term capital gains rate.)
If you sell your primary home at a loss, you cannot deduct the loss.
Closing costs include commissions, legal fees, title fees, recording fees, transfer taxes, etc.
2018 Capital Gains Tax Rates for Married Filing Jointly
|Total taxable income||Fed long-term capital gains rate||CA tax rate|
|Up to $77K||0%||1% to 6%|
|$77K to $250K||15%||6% to 9.3%|
|$250K to $479K||18.8% (15% + 3.8%)||9.3%|
|$479K and over||23.8% (20% + 3.8%)||9.3% to 13.3%|
Note: You don’t have just one “tax bracket” that all of your income gets taxed at. You pay the marginal tax rate for the incomed earned within that bracket.