Knowing how to avoid capital gains taxes on your rental property is an important step in maximizing profits. Capital gains are the profits earned through the sale of capital assets, such as homes or land… This blog post will show you why capital gains tax is so high for California residents and how you can protect yourself with cash offers!
Table of Contents
• What is the capital gains tax in California?
⮩ How can I get out of my conventional or FHA mortgage?
• How to calculate capital gain on sale of house property?
⮩ How to sell rental property without paying taxes?
• How can I lower my property taxes in California?
⮩ How do I pay capital gains tax on rental income?
• County transfer tax California
• Why you need a real estate agent?
What is the capital gains tax in California?
Do you know capital gains tax is so high in California? It’s 14%. Do you want to pay $14,000 on a $200,000 capital gain? Well, the best way to avoid capital gains tax for houses in California is with cash offers. When you submit an offer with no financing involved, then the capital gains are non-existent! This means that when selling your house for cash, capital gains are not calculated into the sales price. Basically, you sell your house “as-is” and there are no negotiations about mortgages or loans.
How can I get out of my conventional or FHA mortgage?
There are many ways that you can get rid of your current mortgage, such as paying it off, selling the house and transferring the equity into cash, or even refinancing into another conventional or FHA loan which would give you immediate capital to take over the existing home payments. ALL these options allow for no capital gains when you sell with cash!
How to calculate capital gain on sale of house property?
Capital gain is calculated by selling price minus capital basis, which is typically purchase price plus capital improvements. The capital improvement, in this case, would be the assessed value/cost of property put into the house to increase its worth. This capital improvement value will have to be adjusted if the property has been depreciated or you are allowed to take a section 179 deduction for capital improvements. The capital gain is then reduced by capital loss, home office expense, and passive activity losses.
The capital gains tax rate can be reduced with capital gains exclusions of $250k/$500k married filing jointly ($100k/$200 single) on primary residence sale, but not completely exempt.
How to sell rental property without paying taxes?
Capital gain applies only if the homeowner meets the requirements imposed by Internal Revenue Code section 121 at the time of sale. There are 3 requirements imposed: 1) Sale occurs 2 years after purchase, 2) House must be used as the main home for 2 out of the 5 years prior to sale, and 3) Not excluded under $250k/$500k capital gains exemption.
There are several ways you can avoid capital gains tax for houses in California:
1.) Paying off your conventional/FHA mortgage allows for no capital gains when selling with cash!
2.) Getting rid of your current mortgage by refinancing into another conventional or FHA loan which would give you immediate capital to take over the existing home payments will allow for no capital gains.
3.) Selling the house and transferring equity into cash will allow for no capital gains tax.
4.) Selling your house “as-is” with a cash offer allows for no capital gains when you sell!
Capital gains tax exemption can be reduced to $125k capital gains for married filing jointly ($62.5k capital gain for single) on primary residence sale, but not completely exempt. Capital losses are limited to capital gains plus $3k per year or capital loss carryover indefinitely. Capital gains exclusion can be claimed on only one capital gain property per year.
Tax code no.163(h) Open capital accounts for the depreciation of rental property. A taxpayer may open capital accounts under which he depreciates, on an annual basis, the buildings and any tangible personal property placed in service during the taxable year or any prior taxable year beginning after December 31, 1953. Depreciation is not allowed on land.
How can I lower my property taxes in California?
Property taxes in California are among the highest in the nation, but there are several ways to lower your property tax.
– Lowering the assessed value of property by capital improvements or capital loss
– Bringing down the purchase price of the house
– Adjustments due to capital gain reduction or capital loss
– Exclusion under $250k/$500k capital gains exemption
How do I pay capital gains tax on rental income?
You can offset capital gains with capital losses so if you have a capital gain on one house, you can use it as the total amount for another sale and reduce your capital gain. You can also exclude up to $250k/$500k (married filing jointly) on home sale profit total capital gains, but capital losses can only be offset against capital gains.
Capital loss limits are $3k for individuals and $1k for married filing separately, both of which would not allow capital losses to cover capital gains.
Taxes on rental income may also include a self-employment tax (Social Security + Medicare) rate of about 15% that has nothing to do with a capital gain or loss exemption.
County transfer tax California
A form of capital gains, there is a percentage transfer tax on property in the event of a sale. This capital gain is deductible against capital gain on the property if the capital loss has occurred. If capital gains exist, only $500k/$1m (married filing jointly) can be transferred to reduce taxable income total capital gains/losses. The franchise tax board gives capital gains exemption to first-time home buyers. This capital gains exemption lowers capital gains by giving equal capital loss if capital losses are greater than capital gains. However, there is no deduction for capital losses against capital gain totals so this would have little effect on reducing overall capital gain limits imposed by the government.
Why you need a real estate agent?
A real estate agent is necessary to represent a buyer of a property and ensure the capital gain tax for capital gains does not happen on a home sale. There are capital gain exemptions that can be capital losses to offset capital gains or capital gain exemptions applied when selling your house, so it’s important to have someone who understands the capital gains taxes in California when selling a property. Closing costs are capital gains tax exempt when you sell with a real estate agent.
Why don’t need a real estate agent?
You may not need a real estate agent if you are capital gains tax-free through capital gain exemptions or capital loss deductions. Another way to avoid capital gains is to get rid of your current mortgage by refinancing it into another conventional/FHA loan. This would allow for capital to take over the existing home payment and capital gain needs to be avoided! Hiring a real estate agent can be expensive and time-consuming especially when you are in a hurry to sell the house you inherited.
Want to sell an inherited house but you also want to avoid capital gains tax also?
As capital gain can be very expensive to Californians, we hope that this article informed you of several ways to avoid capital gains on your rental property or primary home in California! If you’d like to learn more about how to avoid capital gains taxes for houses in California, please contact Cash Offer Please at (805)429-8405 or visit us online at We are ready to help answer any questions you may have about selling your investment property without capital gain tax!