Federal and California Taxation of Home Sales

CAPITAL GAINS ON SALE OF RESIDENCE: The Federal capital gains rate for long-term (property held for more than 1 year) capital gains for the sale of real estate for most tax payers is 15% ( See Capital Gains Rates for a discussion of Federal capital gains tax rates, particularly the 28% rate for depreciation recapture ). Capital gains in California are taxed at ordinary income tax rates (up to 9.3%). For the sale of a personal residence, if it meets certain requirements (see the links below), up to $500,000 of the gain ($250,000 if filing as a single) may be excluded from the gain on sale calculation for both Federal and California tax purposes. For a few good links to an explanation of the Federal tax laws explained in plain english relating to the sale of a personal residence, and the exclusions from gain available see the following links:

http://www.fool.com/taxes/2000/taxes000428.htm
http://www.bankrate.com/brm/news/real-estate/20041018a1.asp

For a link to the IRS regulations regarding the sale of a residence, see the following link:
http://www.irs.gov/publications/p523/ar02.html#d0e3518
Note that in this link, there is a discussion regarding exceptions to the general rule that you can only exclude all or some of the gain for a home sold every two years. There are exceptions if the home is sold due to: a change in place of employment, Health, or unforeseen circumstances (as defined ). This discussion can be accessed by clicking on “Reduced Maximum Exclusion” under the index tab labeled “Excluding the Gain”, which is the fifth topic listed in the table of contents. Note that this results in a “pro-rated exclusion” depending on how many months the property was sold compared to the 2 year allowable period.

For California tax purposes, see the following link: http://www.ftb.ca.gov/individuals/faq/ivr/219.html

NOTE: The information contained herein is for educational purposes only and is not intended for any particular person or circumstance. A competent tax professional should always be consulted before utilizing any of the information presented above.

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