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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10122
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I'm single - considering to sell my First house - the gain

Customer Question

I'm single - considering to sell my First house - the gain is around $ 500000 after 23years - I hear $250000 are tax free - how will the rest be taxed living in California - Home improvements over the 23 years is been done considering $100,000 around but no receipts - Windows, tile floor, some insulation,irrigation , kitchen counters , concrete around the house , New roof
Submitted: 9 months ago.
Category: Tax
Expert:  Lane replied 9 months ago.

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

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Hi, I can help here.

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May be stating the obvious, but since you mention gain and THEN mention the improvements, I wanted to clarify that those improvements increase your basis (thereby lowering your capital gain)

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Capital Gain = Net sales price MINUS basis ... (and basis is purchase price PLUS improvements)

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On the taxation piece, yes, there will be a exclusion of $250,000 for single filers.

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And for federal tax purposes, the amount of gain above 250K is taxed as follows:

  • 0% if taxable income falls in the 10% or 15% marginal tax brackets
  • 15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
  • 20% if taxable income falls in the 39.6% marginal tax bracket

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But at the state level in California, that includable portion of gain is simply added to other income and taxed as regular income (no special rates for capital gain).

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Expert:  Lane replied 9 months ago.

Here are CA's income tax rates:

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California collects income tax from its residents at the following rates.

For single and married filing separately taxpayers:

  • 1 percent on the first $7,749 of taxable income.
  • 2 percent on taxable income between $7,750 and $18,371.
  • 4 percent on taxable income between $18,372 and $28,995.
  • 6 percent on taxable income between $28,996 and $40,250.
  • 8 percent on taxable income between $40,251 and $50,869.
  • 9.3 percent on taxable income between $50,870 and 259,844.
  • 10.3 percent on taxable income between $259,845 and 311,812.
  • 11.3 percent on taxable income between $311,813 and $519,687.
  • 12.3 percent on taxable income of $519,688 and above.
Expert:  Lane replied 9 months ago.

Finally, just to be I'm being clear, although California makes no distinction between ordinary income and capital gains (as federal taxation does) that excluded amount is NOT included in California taxable income either.

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See the following passage on page 8 of California's FTB Publication 1001: (I'll underline the pertinent part)
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"For sale or exchanges after May 6, 1997, federal law allows
an exclusion of gain on the sale of a personal residence in
the amount of $250,000 ($500,000 if married filing jointly)
.
The taxpayer must have owned and occupied the residence
as a principal residence for at least 2 of the 5 years before the
sale. California conforms to this provision. However, California
taxpayers who served in the Peace Corps during the 5 year
period ending on the date of the sale may reduce the 2 year
period by the period of service, not to exceed 18 months."

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Expert:  Lane replied 9 months ago.

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I hope this has helped.

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Please let me know if you have any questions at all.

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If this HAS helped, I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

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That's the only way I'll be credited for the work here.

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Thank you!

Lane

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Customer: replied 9 months ago.
if I sell - do I need receipts for home-improvement To deduct from the gain ? - also for California I still have to pay taxes on the total gain including the $250000 tax free for single ?
Expert:  Lane replied 9 months ago.

Generally no, receipts might be ONE way to prove that the improvements were done IF you were audited (honestly not likely here. Yours is a fairly typical scenario) That improvements would have been made over THIS kind of time period is reasonable.

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And no, as the California Franchise tax board publication states, California recognizes that same exclusion

Expert:  Lane replied 9 months ago.

Hi,

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I’m just checking back in to see how things are going.

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Did my answer help?

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Let me know…

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Thanks

Lane

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