Nonresident California Sales Tax on Real Estate Sale

[pahorn]

I am looking to sell a property in California at a $50k gain.  I live in Washington and never have lived in California.  I understand that there is no capital gain tax rates in California and the sales tax rate is applied.  I am a nonresident of California but I'm not sure what the rate will be or and if I will be taxed on my AGI or just the profits from the real estate sale.  Any help would be greatly appreciated! Thank you. 

[TomD8]

California taxes non-residents on CA-source income.  A capital gain from the sale of real estate located in CA is CA-source income.  CA does not have a separate capital gains rate.  A capital gain is taxed as ordinary income at a rate determined by the amount of the gain and the taxpayer's filing status.  You can find CA's tax rate schedule here:  https://www.ftb.ca.gov/file/personal/tax-calculator-tables-rates.asp

[Anonymous]

A more detailed version of this question.

Similar scenario. WA resident (no state income tax) with $300k capital gains from sale of non primary home in CA. But have > $300k suspended capital loss. So all $300k gains will be eliminated on Federal tax.

However, for CA tax, I'm guessing I can not eliminate the $300k CG gain and will be taxed as ordinary income. FYI, the > $300k suspended CG loss is from stock market loss harvesting so not CA specific loss.

[DianeC958]

Yes, you are correct that you will have $300k gain to pay California at their ordinary income tax rates.  California does not have separate Capital Gains Rate.

[Anonymous]

Thank you Diane. Very helpful. And for others in similar scenario, CA tax bracket for non residents are based on your total income including non CA sources. So tax bracket isn't just based on CA income source.

Actually haven't sold the property and just evaluating tax efficiency. I do have even more detailed question below on alternative solutions.

I'm 73 years old and a very tax efficient solution is to continue renting the property and inherit to my kids at my passing. The 3 major advantages are

- Step-up basis to FMV at my passing

- All depreciation on this property prior to my passing is erased

- Property tax avoid reassessment to market value (in case my kids want to continue to own the property)

An alternative solution is 1031 exchange to WA rental property (closer to my residence, easier to manage rental). But its more complicated and I have a question on CA clawback and inheritance.

- CA will clawback gains when the 1031 exchange to out of state property cashes out. Amount of the gain is at the time of original CA property sale.

What if this 1031 exchanged property in WA (again, no state income tax) was passed through inheritance? Is CA clawback still required? I realize need to deal with WA/Fed estate tax exemption limits.

Thank you for any insight in advance.

[hpp2022]

Hi Diane,

I'm not sure if you're still active on this forum. But, if so, I hope you'll see this question and be able to help.

I'm wondering if I have to file a return in CA if I sold land there at a loss in 2022? I live in Colorado. The land sold for about $33,000.

Thank you.

Hannah

[TomD8]

@hpp2022 --

The CA tax website says:

"All taxpayers must report gains and losses from the sale or exchange of capital assets."

https://www.ftb.ca.gov/file/personal/income-types/capital-gains-and-losses.html

[HopeS]

Yes, you should file a non-resident return in California return to report the sale of land.

You will file Form 540NR as the "California Nonresident or Part-Year Resident Income Tax Return" which is the appropriate form for any taxpayer who did not reside within the state.

Once you've determined that you need to file a nonresident state return, the first thing you want to do is make sure you've filled out the Personal Info section correctly:

1. With your return open, select My Info in the left-hand menu.
2. Then, on the Personal info summary screen, scroll down to Other State Income, and select Edit.
3. At Did you make money in any other states? the question, answer Yes, and make sure your nonresident state(s) are selected from the drop-down.
4. Select Continue to return to your Personal info summary.

After you finish your federal return, you'll automatically move to the State tab, where you'll see your nonresident state(s) listed in addition to your resident state.

In addition to the link provided by TomD8, see additional information in the link below:

Filing Non Resident Return

@hpp2022

[hpp2022]

Thank you both so much for the quick and informative responses!