Yes, you are missing something. And wow, did you get some erroneous advice! Don't overthink this problem. Your discussions with "Timothy" appear focused on the concept that California taxes capital gains as ordinary income. That is true. However if a capital gain is excluded from your federal Adjusted Gross Income, in most cases it does not result in taxable income for California. Timothy appears to have missed entirely your mention that the property being sold is your personal residence.
Notice a statement in one of Timothy's answers which is absolutely absurd:
"No, it would not impact the tax on your gain, if you turn around to buy another house"
That statement is an out-of-date reference to a long-since repealed federal capital gain exemption if one purchased a new home of greater value within a certain time frame. In 1997, the handling of federal capital gain on the sale of one's principal residence was changed to the current approach. Currently, subject to certain requirements the first $250,000 (and in most cases $500,000 if married filing jointly) of capital gain on the sale of a principal residence is excluded from taxation. As mentioned before, California conforms to (is consistent with) the federal provision.
Notice that due to the requirement of occupying the house as a principal residence for at least any two years out of the last five years prior to sale to qualify for the cap gain exclusion, by definition the sale results in a federal "long-term" gain on the sale, only some of which may be taxable. Also note the presumably unfair provision that while a gain may be taxable, a loss on the sale of your principal residence is not a deductible loss.
Lastly, please remember that the California income tax process begins by taking your federal Adjusted Gross Income (AGI) and your federal itemized deductions, then makes additions and/or subtractions to each as required based on differences between federal and California tax law. Any adjustments to your federal information are shown on your California Schedule CA(540), which details the various additions and subtractions, if any, to your federal data.
See the following passage on page 10 of the 2017 edition of California's FTB Publication 1001 at:
https://www.ftb.ca.gov/forms/2017/17_1001.pdf
"For sale or exchanges after May 6, 1997, federal law allows
an exclusion of gain on the sale of a personal residence in
the amount of $250,000 ($500,000 if married filing jointly).
The taxpayer must have owned and occupied the residence
as a principal residence for at least 2 of the 5 years before the
sale. California conforms to this provision. However, California
taxpayers who served in the Peace Corps during the 5 year
period ending on the date of the sale may reduce the 2 year
period by the period of service, not to exceed 18 months."
