California Capital Gains Tax on a Rental Sale: 2026 Worked Math

What California taxes, next to what the IRS taxes

Pages that rank for “California capital gains tax” mostly quote 13.3% and move on. For a landlord the useful question is which layers exist on each side. Our map, from the FTB and the Internal Revenue Code:

For the federal side of a rental sale, with the layers worked in full, see our page on depreciation recapture on a rental property and the net investment income tax on real estate. For the federal summary by holding period, see capital gains tax on real estate in 2026.

The rate schedule: 13.3% is the margin

The FTB's 2025 schedule for married couples filing jointly (Schedule Y) is below. It applies to taxable income on Form 540, line 19, above $100,000; the 1% tax in the last row comes on top.

A caution on years: this is the 2025 schedule, the most recent the FTB had published when we read it. A sale closing in 2026 is taxed on the 2026 schedule, which the FTB indexes for inflation (R&TC 17041(h)); the brackets will be a little higher, so treat every California figure here as a close estimate (our reading).

Because the brackets are stacked, the average tax on a gain depends on what else you earn that year. This table is the California tax only, married filing jointly, on the 2025 schedule (our arithmetic):

Two things follow. First, a typical rental sale of $250,000 to $500,000 costs a couple with ordinary-plus income about 9% to 11% of the gain in California, not 13.3%. Second, there is no break for time: the same gain after one year or twenty costs the same.

A worked sale: $1,200,000 for a rental, federal and California together

Our own illustration, not tax advice. A married couple filing jointly, California residents, sell a rental house they held for years. Amount realized $1,200,000 after selling costs; adjusted basis for federal tax $700,000 after $150,000 of depreciation; federal gain $500,000, of which $150,000 is unrecaptured section 1250 gain and $350,000 is ordinary long-term gain. California depreciation was $140,000 because the state did not follow some federal write-offs (an assumption we made to show the effect), so the California gain is $510,000. We ignore the federal deduction for the California tax, selling-cost detail and the standard deduction; the “other taxable income” is wages, not net investment income.

In scenario B the California side includes $2,100 of the 1% tax, because taxable income reaches $1,210,000. The rows come from the 2026 federal rates in Rev. Proc. 2025-32 and 26 U.S.C. 1(h) and 1411, and the 2025 California schedule.

Why the California gain may not equal the federal gain

California conforms to the Internal Revenue Code only in part, and for a landlord the depreciation rules are the part that matters. FTB Publication 1001 says the state does not conform to the permanent 100% bonus depreciation in the 2025 federal act, limits the section 179 election to $25,000 with a phase-out that starts at $200,000, and does not allow federal section 179 for certain qualified real property. The adjustment is figured on form FTB 3885A and carried to Schedule CA (540).

What this means on a sale: if a cost segregation study moved part of the purchase price into 5-, 7- or 15-year property and you took bonus depreciation on the federal return, your federal basis is lower than your California basis, so the federal gain is larger than the California gain on that component. The reverse can happen when a state deduction exceeded the federal one. Schedule D (540) is the form for the difference, and the FTB says to use it “only if there is a difference between your California and federal capital gains and losses.” Keep a California depreciation schedule beside the federal one from the first year; our page on bonus depreciation for real estate investors covers the federal side.

Installment sales are another difference worth knowing: California lets you elect out of the installment method by reporting the whole gain on Schedule D (540) with a return filed by the due date, which is the way the Form 593 instructions describe electing out of withholding on later installment payments.

Form 593: withholding is not the tax

When California real property is sold, the real estate escrow person must withhold for the FTB. This applies to residents, not only to out-of-state sellers, and it is reported on Form 593. A seller can:

In our example the sales price method is $39,960 (3 1/3% of $1,200,000, the FTB's .0333 factor) and the alternative method is $62,730 (12.3% of the $510,000 gain), so the flat percentage is the lower one. The alternative only wins when the gain is small relative to the price: on a $300,000 gain it is $36,900. The withholding is then a credit on the California return; if the actual tax is $48,100.42 as in scenario A, the couple owes about $8,140 more with the return, and if the withholding is higher than the tax, the difference comes back as a refund. The FTB says that after escrow closes, amounts withheld can be recovered only as a credit on the tax return, so the choice at closing is a cash-flow decision. For exchanges, see our page on the California 1031 exchange clawback.

If you moved out of California

A nonresident owes California tax on California-source gain, which includes a sale of California real property (R&TC 17951 and 17041(i)). The rate is the part people miss: R&TC 17041(b)(2) multiplies the California income by a rate equal to the tax computed on entire taxable income, as if the person were a resident, divided by that income. A former Californian with $300,000 of other taxable income elsewhere who sells the $510,000 gain pays 8.50% (the tax on $810,000 is $68,877.70) and so $43,367.44 in our example, against $48,100.42 as a resident. The other income still raises the rate, which is why leaving does not make the gain disappear. Moving also does not avoid Form 593: the escrow withholds the same 3 1/3% from a nonresident.

What a reader can do with this

• Compute the California tax from the schedule, not from 13.3%. Use the matrix above to see where a gain falls. Doing it before listing lets you compare years: a sale that straddles a low-income year can cost much less than the same sale on top of a high salary.
• Decide the order of events. The federal and California bills are separate; the 1031 exchange, the installment method and the timing of a move each shift them differently, and our page on the California 1031 exchange clawback shows how a deferral can still leave California a claim.
• Reconcile basis before the closing, not after. Pull the federal depreciation schedule and the FTB 3885A figures, and have the California gain ready for Form 593's Part VI if you will elect the alternative method.
• Ask escrow for the Form 593 lines early. The seller signs the form before the close of escrow, and the remitter sends the money by the 20th day of the following month.
• Use the withholding as a floor for estimated tax. If the real tax is higher than the 3 1/3% deposit, plan the balance; this is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on October 21-22, 2026: Franchise Tax Board 2025 California Tax Rate Schedules; Capital gains and losses page (last updated January 28, 2026); 2025 Form 540NR booklet; 2025 Form 593 and its instructions; 2025 Instructions for California Schedule D (540); FTB Publication 1001 (2025); California Revenue and Taxation Code sections 17041 and 17951 (leginfo.legislature.ca.gov); IRS Rev. Proc. 2025-32; 26 U.S.C. 1 and 1411. All worked figures are our arithmetic on those documents. This is analysis of public documents, not investment, legal or tax advice.