California Tax Rules When Selling a House

Taxes are a crucial and often unavoidable element of modern life. It is especially pertinent to address taxes when you live in California. Each state has its own real estate laws that they vehemently enforce. You will need to understand and adhere to them if you want to sell your house in California.

Someone who can help you tremendously in this regard is a real estate agent. They will know all the legal rules and regulations related to selling a house in the state. Moreover, the tax laws as they pertain to real estate are constantly changing. Therefore, you need to keep yourself apprised of the changes. The following are the main tax rules to follow when selling a house in California:


Complete Disclosure

You are required by California tax laws to reveal every detail of the property to potential buyers. Furthermore, you need to do it in writing. The paperwork will make everything clear and ensure the sale is handled properly. These crucial facts about the condition of a property are usually referred to as material facts. Failure to disclose them will result in very severe penalties as past cases in California have proven. Complete disclosure of the facts is the basis of all other tax requirements in California including all defects that the property may have. It will involve filling a form called the Transfer Disclosure Statement which your real estate agent should supply.

Property Taxes

You have probably been paying property tax on the house you are selling since you inhabited it. However, you may have not completely finished paying the property taxes that have accrued in the past. When selling your house, you will need to disclose if there are any property taxes arrears connected to the property. You should also disclose how much you pay in property taxes through the new owners can certainly find that out themselves. If you have any unpaid property taxes in California, then you can have them prorated till the end of escrow. If you have paid a portion of property taxes in advance, you can also negotiate with the buyer for some sort of compensation.


Transfer Tax

When you sell a piece of property in California, then a document must be filled at the county recorder’s office. It is to show that the property has changed ownership and it is the moment when a transfer tax is imposed. A transfer tax will be applied to the sale by the county and the state of California. You should know this if you want to sell your house fast for cash in San Diego, and the same goes for other parts of California especially large cities. The party responsible for paying the transfer tax varies according to where the house is located in California.


If you are selling a house located in Northern California, then the buyer typically pays. Vice versa is true when selling a house located in Southern California. The transfer tax rate is usually very low and in California, the county transfer tax rate is 0.11%. speaking to your real estate broker or escrow agent should help you understand more about the transfer tax


Capital Gains Tax

A capital gain is a difference between what you pay for an asset and what you make selling it. Capital gains tax is applied to most large transactions pertaining to assets in the country including stocks, vehicles, and real estate. If you make a profit selling your home in California, then you are required to pay capital gains tax, however, it will depend on several factors such as how long you owned the home, how long you lived in it, and how much profit you made.

If you owned and lived in the property for at least two of the past five years before the sale, then you will not pay tax for up to 250,000 of the capital gains. If you are married and file a joint tax return, then the amount of profit for which capital tax is exempt doubles. On the other hand, you should not have claimed the tax break from the sale of another home in the past two years. Moreover, if the profit exceeds 250,000 or 500,000 depending on how you file your return, you will pay capital tax gains according to schedule D.

There are various tax implications for selling a property in California. The ones above are the main tax implications of such a sale. You should contact a real estate attorney and they will offer more detailed advice.