How to Calculate the California Tax Gain
California residents must pay taxes on gains or profits they make from the sale of property. Although there are circumstances in which paying capital gains tax is not required, such as when the total sale price is $100,000 or less or when it is a foreclosure sale, property owners generally must calculate capital gains taxes from the sale or transfer of property during the tax year they sell it. If you are the buyer of a property, California law requires you to calculate and withhold capital gains taxes on the property. However, you may request the real estate escrow professional involved in the sale to calculate and withhold it for you.
Note the Selling Price
Write down the selling price for your property. This is the gross amount paid by the buyer.
Deduct Selling Expenses
Deduct any selling expenses you incurred, such as advertising, legal fees and title transfer fees.
Determine the Cost of the Property
Determine the cost basis of the property. Usually, this is the purchase price of the property. If you did not purchase the property, follow the California Revenue and Tax Code instructions on how to calculate your basis included in Form 593-C. For instance, if you received the property as a gift, your basis is the adjusted basis of the property at the moment you received the gift.
Deduct Your Basis
Deduct your basis from the result of Step 2. Subtract any loan points you paid as a seller.
Calculate Deductible Depreciation
Calculate the depreciation on your property value you could have deducted during the years you owned it, whether you did take the depreciation or not. This applies to properties used for investment purposes. There are several ways of calculating depreciation depending on the type of property and your personal circumstances.
For instance, if you bought a home 20 years ago for $125,000, used it as a rental property for 18 years and invested $20,000 in capital improvements to the property, you would add $20,000 to $125,000, divide by 27.5 and multiply by 18, which would give you an estimated depreciation of $94,909.09.
Deduct Your Depreciation
Deduct your depreciation from the result of Step 4. Subtract any capital improvements you made to the property. The result is your estimated gain on the sale of the property. If the result is a negative number, your made a loss on the sale and do not have to pay capital gain taxes.
Multiply Your Gain by the Tax Rate
Multiply your estimated gain on the sale by the tax rate you or your business qualifies for. For short-term capital gains, in which you owned the property for one year or less, you'd pay 15 percent. If you owned the property for more than a year, you'd have to pay 20 percent. These numbers may vary depending on your income, however, as individuals with high incomes may pay as much as 23.8 percent.
For example, if you made an estimated gain of $100,000 on property you owned for less than a year, you'd multiply $100,000 by 0.15, which equals a tax liability of $15,000.
Tip
Keep any forms and paperwork you use to calculate your capital gains tax as part of your records for a minimum of five years.
References
Resources
Tips
- Keep any forms and paperwork you use to calculate your capital gains tax as part of your records for a minimum of five years.
Writer Bio
Andrew Latham has worked as a professional copywriter since 2005 and is the owner of LanguageVox, a Spanish and English language services provider. His work has been published in "Property News" and on the San Francisco Chronicle's website, SFGate. Latham holds a Bachelor of Science in English and a diploma in linguistics from Open University.