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. Primary Home:
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
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.
| Sales price | $1,300,000 |
| Closing costs from selling home | -$100,000 |
| Adjusted sales price | $1,200,000 |
| Purchase price | $500,000 |
| Closing costs from purchasing home | $10,000 |
| Home improvements | $90,000 |
| 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 |
| 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% |
