Question 1

How is capital gains tax calculated?

Accepted Answer

Capital gain = Sale Price − Cost Basis (purchase price + commissions/fees). Tax owed = Capital Gain × Tax Rate. The rate depends on holding period: short-term gains (1 year or less) are taxed as ordinary income at your marginal bracket (10–37%); long-term gains (more than 1 year) are taxed at preferential rates of 0%, 15%, or 20% depending on income.

Question 2

What is the capital gains tax on sale of property in California?

Accepted Answer

California taxes capital gains as ordinary income at the state level — up to 13.3% — with no preferential rate for long-term holdings. Combined with federal long-term rates (15% or 20%) and the 3.8% NIIT for high earners, the all-in rate on a property sale can hit 37% in California. The federal Section 121 exclusion ($250K single / $500K married) still applies for primary residences.

Question 3

How can I reduce capital gains tax?

Accepted Answer

Hold assets for more than one year to qualify for long-term rates (0–20% vs. up to 37%). Harvest tax losses by selling losing positions to offset gains. Use tax-advantaged accounts (401k, IRA, Roth IRA) where gains are deferred or tax-free. Donate appreciated assets to charity instead of selling — you avoid the gain entirely and get a deduction. Consider timing the sale into a year with lower income.

Question 4

What's the difference between short-term and long-term capital gains tax?

Accepted Answer

Holding period is the only thing that matters. Sell at 364 days or fewer → short-term, taxed at your full ordinary income bracket (up to 37%). Sell at day 366 or later → long-term, taxed at the preferential 0%, 15%, or 20% schedule. The day count starts the day after purchase and includes the day of sale. On a $50,000 gain, the difference between a 22% short-term and 15% long-term rate is $3,500 saved.

Question 5

Do I pay capital gains tax on my home sale?

Accepted Answer

If you owned and lived in your home for at least 2 of the past 5 years, you can exclude up to $250,000 of gain from tax (single) or $500,000 (married filing jointly). This is called the Section 121 exclusion. Gains above the exclusion amount are taxed at long-term capital gains rates, assuming you held the home for more than a year.

Question 6

How is capital gains tax calculated on stocks?

Accepted Answer

Same formula as any asset: gain = sale price − cost basis (purchase price + commissions). For stocks, your broker tracks the cost basis automatically and reports it on Form 1099-B. If you've held the shares more than 1 year, gain is taxed at 0/15/20%. If 1 year or less, it's taxed at your ordinary income rate. Wash-sale rules disallow losses if you re-buy the same stock within 30 days.

Question 7

What is the difference between realized and unrealized gains?

Accepted Answer

An unrealized gain is a paper profit — the asset has increased in value but you have not sold it yet. You owe no tax on unrealized gains. A realized gain occurs when you actually sell the asset. Tax is owed only on realized gains. This is why the timing of when you sell matters significantly.

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