Capital gains tax rates for 2024 (2024)

This is a simple update on the Capital gains tax rates for 2024, particularly in the sale of real estate.

For additional details on Capital Gains in real estate, including use of the IRS Section 121 Exclusion (aka the Homeowners Exemption or Homeowners Exclusion) Saving $250,000 or $500,000 of taxable gains, and what else can be deducted,read our full article here.

Those selling in Newport Beach, Eastside Costa Mesa and other Coastal Orange County and high property value locations through California should be aware of the potential tax implications of their sale.

What are Capital Gains Tax Rates for 2024?

Long-term capital gains tax rates for the 2024 tax year are as follows:

(note – IRS capital gains rates are based on your total income for the year, including the capital gain, but only the capital gain is then subject to the below rate, your other income will be subject to different / ‘regular’ rules):

Single Filers:

Up to $47,025 – 0% capital gains tax rate $47,025– $518,900 – 15% capital gains tax rate Over $518,900 – 20% capital gains tax rate

Married Filing Jointly:

Up to $94,050 – 0% capital gains tax rate $94,050 – $583,750 – 15% capital gains tax rate Over $583,750 – 20% capital gains tax rate

Head of Household:

Up to $63,000 – 0% capital gains tax rate $63,000 – $551,350 – 15% capital gains tax rate Over $551,350 – 20% capital gains tax rate

Thus the highest federal capital gains rate is currently 20%.

Don’t Forget The Affordable Care Act, aka “Obamacare” Tax

On top of that, The Affordable Care Act, aka “Obamacare” imposed a Medicare Tax on long term capital gains for high income earners, those with adjusted gross incomes over $200,000 for individuals and $250,000 for married couples of an additional 3.8%.

Don’t Forget The California (or other state) Tax

Additionally, California (and some other states) will want their tax too! California will treat the capital gains as ordinary income for tax purposes (i.e. it just gets added on top of whatever else you make, and the total amount is treated as your taxable income). The greater the amount, the greater the risk of being pushed into California’s highest tax bracket of 13.3%. (Note, the top California income tax rate effective January 1, 2024, is an eye-watering 14.4%. The new 14.4% rate is the result of no limit on California’s 1.1% employee payroll tax for State Disability Insurance. Thus a 14.4% rate for those earning over $1 million.)

Therefore, the worst case, for high profits (or high earners) in California, capital gains taxes are up to 37.1%. That’s over a full one-third of the gain, out the window, in taxes.

What are Capital Gains Taxes?

Generally speaking, any ‘profit’ on the sale of your primary residence (i.e. the difference between what you paid for it, and what you sell it for, less expenses and other allowable deductions) will be taxed as “capital gains.”

Capital Gains Taxes are simply another tax. Even though the money you used to purchase the property and make the mortgage payments were already taxed, there are additional taxes now due at the time of sale, called “capital gains.”

So, if you purchased your home for $100,000 and sold it many years later for $1,000,000, you essentially have $900,000 in “capital gains” on that sale.

The IRS Section 121 exclusions are significant potential savings; but, if your profit is well over those allowances, you will still owe capital gains taxes, potentially significant amounts. This fear of taxation is one of the many factors contributing to our tight housing supply, i.e. people do not want to sell knowing they will have to pay capital gains taxes on their profits, even if they buy a new home.

– Devin Lucas

Author Devin R. Lucas is a Real Estate Attorney, Broker and REALTOR®, specializing in Newport Beach, Costa Mesa and Orange County coastal communities, serving individuals, Trustees and investors in residential real estate, including leasing and select local property management.

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Sources:

Lucas Real Estate REALTORS® and related Real Estate Law & Tax Considerations

Lucas Real Estate is a unique full-service residential real estate brokerage providing related residential real estate legal services and real estate tax considerations and planning, based in Newport Beach, California. | Devin Lucas is a licensed California Real Estate Attorney, Real Estate Broker and REALTOR® | Courtney Lucas is a California licensed CPA and REALTOR®

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