Taxes · Capital Gains · Los Angeles County
What Is the Capital Gains Tax Rate in Los Angeles?
Justin Borges, DRE #01940318 · 13 min read · Updated July 26, 2026
Selling Los Angeles real estate can trigger federal long-term capital gains tax at 0, 15, or 20 percent depending on income, plus California's ordinary income tax of up to 13.3 percent, since the state has no separate capital gains rate. Most primary-residence sellers avoid much of this through the Section 121 exclusion, which shelters up to $250,000 of gain single or $500,000 married filing jointly.
Sources: IRS Revenue Procedure 2025-32 (tax year 2026 brackets); IRS Publication 523 (Section 121 exclusion); Franchise Tax Board (California rate structure); IRC Section 1031.
What You Will Learn
- What Is the Capital Gains Tax Rate in Los Angeles?
- Who Qualifies for the 0% Capital Gains Rate on a Los Angeles Home Sale?
- Does California Have Its Own Capital Gains Tax Rate?
- How Much of a Los Angeles Home Sale Is Tax-Free Under Section 121?
- Does the Net Investment Income Tax Apply to a Los Angeles Property Sale?
- How Does the Step-Up in Basis Reduce Tax on an Inherited Los Angeles Property?
- How Much Does California Withhold From a Real Estate Sale?
- How Does a 1031 Exchange Defer Capital Gains Tax on Los Angeles Investment Property?
- Frequently Asked Questions
What Is the Capital Gains Tax Rate in Los Angeles?
A Los Angeles County property sale can be taxed at two separate levels. Federally, long-term capital gains (property held more than one year) fall into a 0, 15, or 20 percent bracket based on taxable income, per IRS Revenue Procedure 2025-32 for tax year 2026. California layers ordinary income tax on top, since the state does not offer a reduced rate for capital gains the way federal law does.
That combination means a high-income Los Angeles seller can face a federal rate of 20 percent plus a California marginal rate as high as 13.3 percent on the same dollar of gain, before accounting for any available exclusions or deferral strategies described below.
The biggest mistake I see is a seller assuming California taxes gains the way the federal government does. It doesn't. Every dollar of gain here is ordinary income to the state.
Justin Borges, CA DRE #01940318Who Qualifies for the 0% Capital Gains Rate on a Los Angeles Home Sale?
For tax year 2026, a single filer with taxable income up to $49,450 falls entirely in the 0 percent long-term capital gains bracket, and a married couple filing jointly qualifies up to $98,900 of taxable income (IRS Revenue Procedure 2025-32). Both figures rose from 2025's $48,350 single and $96,700 married-filing-jointly thresholds.
| Filing Status | 0% Bracket Ceiling (2026) | 15% Bracket Ceiling (2026) | Above the Ceiling |
|---|---|---|---|
| Single | $49,450 | $545,500 | 20% |
| Married Filing Jointly | $98,900 | $613,700 | 20% |
A retired Los Angeles County homeowner with modest other income can sometimes sell an appreciated property and pay zero federal capital gains tax on the taxable portion of the gain, which is exactly why combining the Section 121 exclusion with a lower-income year is worth planning around.
Does California Have Its Own Capital Gains Tax Rate?
No. California taxes capital gains as ordinary income under its nine-bracket system, with a top marginal rate of 13.3 percent that includes the 1 percent Behavioral Health Services Tax on taxable income over $1,000,000 (Franchise Tax Board). There is no reduced rate for gains held long-term the way federal law provides.
The exact 2026 dollar amounts where each California bracket begins had not yet been published by the Franchise Tax Board as of this writing, since the state typically releases that schedule later in the year. A Los Angeles seller should confirm the current-year bracket cutoffs directly with the Franchise Tax Board or a tax professional before estimating a precise state tax bill.
How Much of a Los Angeles Home Sale Is Tax-Free Under Section 121?
Up to $250,000 of gain for a single filer, or $500,000 for a married couple filing jointly, is excluded from federal capital gains tax under IRC Section 121 (IRS Publication 523), as long as the seller owned and used the Los Angeles property as a primary residence for at least 2 of the 5 years before the sale. These dollar figures have not changed since 1997 and are not indexed for inflation.
| Original Purchase Price | Sale Price | Gain Before Exclusion | Section 121 Exclusion (MFJ) | Taxable Gain |
|---|---|---|---|---|
| $400,000 | $900,000 | $500,000 | $500,000 | $0 |
| $500,000 | $1,200,000 | $700,000 | $500,000 | $200,000 |
| $600,000 | $1,600,000 | $1,000,000 | $500,000 | $500,000 |
Los Angeles County appreciation over the past several decades means many longtime homeowners have gains well above the exclusion, which is why the taxable-gain column above grows quickly even at prices that are not unusual for the area.
Does the Net Investment Income Tax Apply to a Los Angeles Property Sale?
It can. The Net Investment Income Tax adds an additional 3.8 percent on investment income, including taxable capital gains, once modified adjusted gross income exceeds $200,000 for a single filer, $250,000 for a married couple filing jointly, or $125,000 for a married person filing separately. These thresholds are fixed by IRC Section 1411 and have not changed since 2013, so they are not adjusted for inflation the way the long-term capital gains brackets are.
A Los Angeles County seller with a large gain after the Section 121 exclusion, common on an investment property or a longtime family home sold well above its Section 121 shelter, should factor this additional 3.8 percent into the total tax picture rather than only looking at the federal capital gains rate.
How Does the Step-Up in Basis Reduce Tax on an Inherited Los Angeles Property?
Under IRC Section 1014, an inherited property's cost basis resets to its fair market value at the date of death, which erases the capital gain that built up during the deceased's lifetime. An heir who sells shortly after inheriting a Los Angeles County property typically owes little or no federal capital gains tax, since the taxable gain is measured from the stepped-up basis rather than the original purchase price decades earlier.
California's community property rules make this even more favorable for a surviving spouse: under IRC Section 1014(b)(6), the basis of the entire community property resets to fair market value when the first spouse dies, not just the deceased spouse's half (IRS Publication 555). A surviving spouse who sells a Los Angeles County home shortly after a spouse's death can face little to no federal capital gain on the sale as a result.
How Much Does California Withhold From a Real Estate Sale?
Escrow generally withholds approximately 3⅓ percent of the gross sales price on a California real estate transaction under FTB Form 593 rules, unless the seller qualifies for an exemption, such as the sale being the seller's principal residence under IRC Section 121, or the seller certifying a loss or zero California gain. Confirm the current withholding rate and exemption thresholds with the Franchise Tax Board or your escrow officer before closing, since this figure is set by state form instructions that can be updated.
This withholding is not an additional tax on top of what is ultimately owed; it is credited against the seller's actual California tax liability when the return is filed, similar to how federal withholding works against income tax owed.
How Does a 1031 Exchange Defer Capital Gains Tax on Los Angeles Investment Property?
A 1031 exchange lets a Los Angeles County investor defer capital gains tax by reinvesting sale proceeds into a like-kind replacement property rather than cashing out. The investor must identify the replacement property within 45 days of closing on the relinquished property and complete the purchase within 180 days, using a qualified intermediary to avoid constructive receipt of the sale proceeds (IRC Section 1031).
| Rule | Requirement |
|---|---|
| 3-Property Rule | Identify up to 3 properties of any value |
| 200% Rule | Identify unlimited properties if combined value is 200% or less of the relinquished property's value |
| 95% Rule | Identify unlimited properties of any value, but must acquire at least 95% of total identified value |
The 2025 federal tax overhaul left Section 1031 fully intact for real property, so a Los Angeles County investor planning an exchange today is working with the same 45-day and 180-day deadlines that have applied for years, not a shrinking or newly capped benefit.
Frequently Asked Questions
What is the capital gains tax rate on real estate in Los Angeles?
Federal long-term capital gains rates are 0, 15, or 20 percent depending on taxable income (IRS Revenue Procedure 2025-32, tax year 2026). California has no separate capital gains rate; gains are taxed as ordinary income at rates up to 13.3 percent, which includes the 1 percent Behavioral Health Services Tax on income over $1,000,000.
Who qualifies for the 0% capital gains rate on a home sale?
For 2026, a single filer with taxable income up to $49,450, or a married couple filing jointly with taxable income up to $98,900, falls in the 0 percent long-term capital gains bracket (IRS Revenue Procedure 2025-32). Gains above those thresholds move into the 15 percent bracket, and gains above roughly $545,500 (single) or $613,700 (married filing jointly) reach 20 percent.
Does California have its own capital gains tax rate?
No. California taxes capital gains as ordinary income under its nine-bracket system, with a top marginal rate of 13.3 percent that includes the 1 percent Behavioral Health Services Tax on taxable income over $1,000,000 (Franchise Tax Board). There is no reduced rate for long-term gains at the state level.
How much of a home sale is tax-free under Section 121?
Up to $250,000 of gain for a single filer, or $500,000 for a married couple filing jointly, is excluded from federal capital gains tax under IRC Section 121 (IRS Publication 523), provided the seller owned and used the home as a primary residence for at least 2 of the 5 years before the sale. These dollar amounts have not changed since 1997.
How does the step-up in basis reduce capital gains tax on inherited property?
Under IRC Section 1014, an inherited property's cost basis resets to its fair market value at the date of death, which erases the capital gain that built up during the deceased's lifetime. For California community property, IRC Section 1014(b)(6) resets the basis of the entire property, not just the deceased spouse's half, when the first spouse in a marriage dies (IRS Publication 555).
How does a 1031 exchange defer capital gains tax on Los Angeles investment property?
A 1031 exchange lets an investor defer capital gains tax by reinvesting sale proceeds into a like-kind replacement property, identifying the replacement within 45 days of closing and completing the purchase within 180 days (IRC Section 1031). The 2025 tax overhaul left Section 1031 fully intact for real property.
Weighing a Sale Against the Tax Bill?
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