California Capital Gains Tax Rate (2026)
California capital gains tax overview
California taxes capital gains as ordinary income with no preferential rate. The top 13.3% rate applies above $1,000,000 (single). Ten brackets total.
Federal + California combined rates
Your total capital gains tax bill includes both layers — federal and state. Here is what a California investor pays in 2026 for long-term gains:
| Federal Long-Term Rate | California State Rate | Combined Rate | Plus NIIT (if applicable) |
|---|---|---|---|
| 0% | 13.30% | 13.30% | 17.1% |
| 15% | 13.30% | 28.3% | 32.1% |
| 20% | 13.30% | 33.3% | 37.1% |
The NIIT (Net Investment Income Tax) adds an extra 3.8% for taxpayers whose MAGI exceeds $200,000 (single) or $250,000 (married filing jointly). It is a federal tax only — California does not have an equivalent.
How California compares to other states
California's top rate of 13.30% places it among the highest-taxed states for capital gains. For comparison:
- Zero-tax states (FL, TX, NV, etc.): 0% — total with 15% federal = 15%
- Low-rate states (AZ, IN, PA): 2.5–3.1% — total with 15% federal = 17.5–18.1%
- California: 13.30% — total with 15% federal = 28.3%
- High-rate states (NY, NJ): 10.75–10.9% — total with 15% federal = ~26%
- California: 13.3% — total with 15% federal = 28.3%
Tax-reduction strategies for California residents
With a top state rate of 13.30%, minimizing capital gains tax is particularly important in California. Key strategies:
- Hold over 1 year for long-term federal rates (0/15/20%). California does not offer a preferential state rate, but federal savings alone are often 7–17%.
- Tax-loss harvesting: Offset your gains with losses realized in the same year. A $20,000 loss offsets $20,000 of gains dollar-for-dollar, saving up to 33% ($6,660) on that $20,000 at top rates.
- 0% bracket planning: In lower-income years (retirement, sabbatical, between jobs), realize gains at the federal 0% rate. You still owe California state tax, but eliminating the federal component is significant.
- Donate appreciated stock directly to charity or a donor-advised fund to avoid capital gains tax entirely while generating a charitable deduction for the full fair market value.
- Installment sales: If selling a business or real estate, structuring as an installment sale spreads the gain over multiple years, potentially keeping each year's gain in a lower bracket.
Detailed California capital gains tax rules
Tax history and legal basis
California has taxed capital gains as ordinary income since its personal income tax was established in 1935. It has never offered a preferential rate for long-term gains.
Exemptions and special treatment
California offers a partial exclusion for Qualified Small Business Stock (QSBS) under R&TC §18152.5 — up to 50% of gain from qualifying CA small business stock held 5+ years. There is no general long-term capital gains exclusion. The $250k/$500k federal home sale exclusion (Section 121) applies to reduce the gain before CA taxes it.
Filing requirements
File Form 540 (resident) or 540NR (non-resident/part-year). California requires estimated tax payments if you expect to owe $500+ after withholding. Mental Health Services Tax (1% surcharge) applies to taxable income over $1 million, bringing the effective top rate to 14.4%.
Recent changes and legislative updates
California's top rate of 13.3% (plus 1% Mental Health surcharge above $1M) remains the highest state income tax rate in the nation. There have been multiple ballot proposals to increase taxes on high earners further, though none passed in 2024. The state's Franchise Tax Board (FTB) aggressively audits residency claims of taxpayers who move to no-tax states.
Worked example: $50,000 capital gain in California
Here's exactly what a California resident would owe on a $50,000 long-term capital gain with $80,000 in other income (single filer, 2026):
| Component | Amount | Notes |
|---|---|---|
| Capital gain | $50,000 | Long-term (held over 1 year) |
| Federal tax (15%) | −$7,500 | Based on $80,000 ordinary income + gain |
| California state tax (9.3%) | −$4,650 | Applied to the full gain amount |
| Total tax owed | −$12,150 | Federal + state combined |
| You keep | $37,850 | 75.7% of your gain |
After both federal and California state tax, you keep $37,850 of your original $50,000 gain. The effective combined rate is 24.3%. This is significantly higher than the national average — consider tax-loss harvesting or timing strategies to reduce your bill.
Frequently asked questions — California
Does California tax short-term and long-term gains differently?
No — California taxes both short-term and long-term capital gains as ordinary income at the same rates as wages. There is no state-level preferential rate for patience. The federal system, however, taxes long-term gains at 0/15/20% vs. up to 37% for short-term — a significant difference that applies regardless of state.
Do I need to file a California tax return if I only have capital gains?
If you have capital gains income and meet California's filing threshold, you are required to file a California state income tax return. The threshold is typically similar to the standard deduction amount — check the CA Department of Revenue for the current year's filing requirements.
What if I moved to California mid-year?
If you moved to California during the year, you are a part-year resident. California generally taxes capital gains realized while you were a California resident. Gains realized before you moved may be taxable by your prior state. Keep detailed records of when each sale occurred relative to your move date.