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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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california capital gains tax questions-sale of primary home

Customer Question

did california change their laws on selling property and not being taxed capital gains if living less than two years?
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

California has conformed to Federal law with respect to the $250,000 gain exclusion ($500,000 if MFJ) on the sale of a principal residence every two years.    


If as of the date of sale you have owned and used the property as your personal residence for 24 out of the last 60 months, then you can exclude up to $250,000 of gain ($500,000 if married filing joint) if filing a single or MFS return.


If you are in your principal residence for less then 24 months you may not use the Sec. 121 exclusion (i.e. $250K/$500K exclusion) unless you meet one of the exceptions. You may use a pro-rated exclusion if the reason you are moving is related to a job change, for medical reasons or for some other unforeseen circumstance.   

The pro-ration is calculated by dividing the number of days you both owned and occupied the property as your principal residence by 730 days (i.e. two years). Multiply the resulting percentage by $250K if single or $500K if MFJ.



If you do not meet one of the exceptions, then the gain is taxable.  If you own the property for more then one year, then the gain will be treated a long-term and will be taxed at capital gain rates (i.e. a maximum of 15% Federal).  Otherwise the gain is treated as ordinary income the same as wages and interest subject to whatever your marginal tax rate is.  


California does not have a capital gains rate, so any gain that is taxable will be subject to your state marginal tax rate. 




Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: I'm not satisfied with your answer because you have told me what I already am aware of. I have discussed this matter with two other individuals and their answers are more enlightening and helpful than yours. sorry... you just didn't give me the answer I was looking for.
Expert:  Christopher Phelps replied 11 years ago.

Since California conformed to IRC Sec. 121, they have not changed their laws with respect to how sales of principal residences owned and used for less then two years are treated. 


If you have not owned and occupied your principal residence for two years on the date of sale, then you must meet one of the exceptions listed above, for California purposes as well as Federal, in order to be eligible to use a pro-rated exclusion amount.  Otherwise your gain is taxed.


It would be helpful if you could tell me what exactly your trying to discern about California law.

   

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