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How to Calculate Capital Gains When Selling Real Estate

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:

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

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 income earned within that bracket.