Capital Gains Tax California

Federal Capital Gains Tax Rates 2026

Long-term capital gains (assets held more than one year) are taxed at preferential federal rates: 0%, 15%, or 20% depending on your taxable income. For 2026, the 0% rate applies to taxable income up to $48,350 (single) or $96,700 (married filing jointly). The 15% rate applies up to $533,400 (single) or $600,050 (MFJ). The 20% rate applies above those thresholds. Short-term capital gains (assets held one year or less) are taxed as ordinary income at your marginal rate.

California Capital Gains Tax

California does not have a preferential capital gains rate — all capital gains are taxed as ordinary income at California's regular income tax rates (up to 13.3%). This means a California taxpayer in the top bracket pays a combined federal and California rate of up to 33.3% on long-term capital gains (20% federal + 13.3% California) — one of the highest combined capital gains tax rates in the world. Planning the timing and structure of asset sales is critical for California investors.

Short-Term vs. Long-Term Gains

The one-year holding period is the most important planning threshold for federal capital gains tax. Selling an asset after holding it for more than one year qualifies for the preferential long-term rate. Selling before one year results in short-term gains taxed as ordinary income — potentially at rates up to 37% federal plus 13.3% California. KDA reviews the holding period of every significant asset before recommending a sale.

Net Investment Income Tax (NIIT)

High-income taxpayers owe an additional 3.8% Net Investment Income Tax (NIIT) on investment income including capital gains. The NIIT applies to the lesser of: (1) net investment income, or (2) the amount by which modified AGI exceeds $200,000 (single) or $250,000 (MFJ). Combined with the 20% long-term rate and 3.8% NIIT, the maximum federal rate on long-term capital gains is 23.8% — plus 13.3% California = 37.1% combined.

Capital Gains on Real Estate

The Section 121 exclusion allows homeowners to exclude up to $250,000 ($500,000 for married couples) of gain from the sale of a primary residence, provided they have owned and used the home as their primary residence for at least two of the five years before the sale. This exclusion applies to both federal and California taxes. For California investors with significant real estate gains above the exclusion, 1031 exchanges are the primary deferral strategy — though California has additional rules for 1031 exchanges involving out-of-state replacement property.

Tax Planning Strategies

KDA's capital gains planning strategies for California taxpayers: (1) Timing — defer gains to years with lower income; accelerate losses to offset gains. (2) Tax-loss harvesting — sell losing positions to offset gains; be aware of wash-sale rules. (3) Opportunity Zone investments — defer and potentially reduce capital gains by investing in Qualified Opportunity Zones. (4) Charitable giving — donating appreciated assets to charity avoids capital gains entirely while generating a charitable deduction. (5) Installment sales — spread gain recognition over multiple years to stay in lower tax brackets.