Selling Your CA Home and Capital Gains: What You Need to Know

If you’re thinking about selling your CA home, congratulations—you could be looking at a big return. But with that profit may come a not-so-small surprise: capital gains taxes. The good news? You have options to reduce or eliminate those taxes with a little planning.

In this article, we’ll break down what capital gains are, how they’re calculated when selling a home in California, and smart strategies to help you keep more of your hard-earned equity.

WHAT ARE CAPITAL GAINS?

When you sell your home for more than you originally paid for it, the difference is called a capital gain. But it’s not just the purchase price vs. the sale price—it’s based on your adjusted cost basis.

Your cost basis includes:

• The original purchase price

• Plus the cost of capital improvements (like a new roof, remodeled kitchen, or energy upgrades)

• Minus any depreciation or casualty losses (if applicable)

The higher your cost basis, the lower your capital gain—and your tax bill.

3 Ways to Reduce Capital Gains When Selling Your CA Home

If you’re focused on selling your CA home and capital gains are on your mind, here are three key strategies you should consider:

1. Raise Your Cost Basis With Improvements

Every dollar you spend improving your home can work in your favor. Common upgrades that increase your cost basis include:

• Kitchen and bathroom remodels

• New HVAC, roof, or windows

• Room additions or ADUs

• Solar panel installation

Be sure to keep your receipts—you’ll need documentation to claim those upgrades later.

2. Deduct Selling and Transaction Costs

Some of the costs associated with selling your home can help offset your capital gain:

• Real estate agent commissions

• Escrow, title, and legal fees

• Staging and advertising costs

• Transfer taxes

Subtracting these from your selling price reduces the taxable gain.

3. Use the Home Sale Capital Gains Exclusion

Here’s one of the best tax breaks available: If you’ve lived in your primary residence for at least 2 of the past 5 years, you can exclude:

• $250,000 of gain if you’re single

• $500,000 if you’re married and filing jointly

This exclusion can dramatically reduce—or completely eliminate—capital gains taxes when selling your CA home.

Bonus Tips to Consider

• 1031 Exchange: If the property was an investment or rental, you may be able to defer capital gains by reinvesting the proceeds in another property.

• Convert Your Home to a Rental: In some situations, homeowners convert their primary residence to a rental, then sell later—but this strategy has rules and risks.

• Harvest Capital Losses: If you’ve had losses in the stock market or other investments, you may be able to offset your real estate gains.

When to Start Planning

The ideal time to think about capital gains isn’t at the closing table—it’s before you list your home to sell. Whether you’re upsizing, downsizing, or relocating, understanding how the sale of your home will impact your taxes helps you make smarter decisions.

Selling Your CA Home and Capital Gains: Final Takeaway

Selling a home in California can be one of the most profitable moves you ever make—but it can also come with an unexpected tax bill. The more you understand about capital gains, exclusions, and deduction strategies, the better positioned you’ll be to keep more of what you’ve earned.

If you’re planning on selling your CA home and want a personalized look at  how to prepare your home for a top-dollar sale—let’s connect. I’m here to help you plan ahead and sell smart.

*We recommend consulting with your tax professional for complete details and rules regarding CA Prop 19.

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