A California seller's tax bill has a second layer that most people don't price in until escrow closes. The federal code taxes a long-term gain at 15%, with a 0% rate for lower incomes and 20% for higher incomes, and most owners have heard those numbers. California then taxes the same gain as ordinary income, at rates that reach 12.3% and, on taxable income over $1 million, 13.3%. The state has no lower rate for long-term gains at all. On a park a family bought in the 1980s and has carried on the books at a low basis, the state layer can rival the federal one.
A park sale complicates this further because you aren't selling one thing. The land under the sites, the bathhouse your father poured, the pedestals and septic field, the mower and the golf cart, the camp store inventory, and the goodwill of guests who book the same site every July each get allocated a share of the price, and each share is taxed under its own rule. California's withholding at closing is then calculated on the sales price rather than on the gain, so the check you see at escrow rarely matches what you owe in April.
California capital gains tax on real estate: the short answer
California taxes gain on real estate as ordinary income at its regular brackets, 1% to 12.3%, with an additional 1% on taxable income above $1 million, for a top combined rate of 13.3%. The Franchise Tax Board puts it directly: "California does not have a lower rate for capital gains." That state tax sits on top of whatever the federal return charges.
The full stack on a taxable sale looks like this:
- Federal taxes: Long-term capital gains on property held more than one year face a 15% rate, with 0% for lower taxable incomes and 20% for higher taxable incomes (Rev. Proc. 2025-32). Federal net investment income tax (NIIT) adds 3.8% once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for joint filers (IRS Topic 559).
- California income tax: 1% to 12.3% on the gain as ordinary income, plus 1% on taxable income over $1 million under R&TC §17043.
If the property was your main home, Section 121 lets you exclude up to $250,000 of gain ($500,000 on a joint return) before any of those rates apply, and California conforms to that exclusion. For the business portion of a park, no such exclusion exists, and depreciation recapture adds its own layer.
How capital gains tax on a California real estate sale works
California applies ordinary income brackets to your gain regardless of holding period, while federal rates depend on how long you held the property and your income. The amount subject to those rates depends on your adjusted basis and selling costs.
California income tax brackets applied to your gain
Holding period makes no difference on the California return. The 2025 Schedule CA instructions state: "California taxes long and short term capital gains as regular income. No special rate for long term capital gains exists." The gain is added to your other income and taxed at whatever bracket the total reaches.
The FTB announced 2026 indexing at a 3.4% inflation rate in its Tax News page and said complete 2026 rates would post in late December, so the figures below come from that announcement rather than a final rate schedule. The upper brackets are the ones that matter for a sale:
| Rate | Single, taxable income over | Married/RDP joint, taxable income over |
|---|---|---|
| 9.3% | $75,197 | $150,394 |
| 10.3% | $384,109 | $768,218 |
| 11.3% | $460,927 | $921,854 |
| 12.3% | $768,213 | $1,536,426 |
The extra 1% applies to taxable income over $1,000,000 regardless of filing status; R&TC §17043 excludes the joint-return doubling that applies to the regular brackets. A single seller therefore pays 13.3% on income above $1 million. A married couple filing jointly pays 11.3% between $921,854 and $1 million, 12.3% from $1 million to $1,536,426 (counting the surcharge), and 13.3% above that.
For a single seller whose taxable income, including the park gain, falls between $75,197 and $384,109, the portion of the gain within that bracket is taxed at 9.3%. The brackets widen quickly from there, which is why a modest-looking park can produce a state bill in six figures.
Federal rates for 2026 and the 3.8% NIIT
Rev. Proc. 2025-32 sets the federal long-term rate thresholds for 2026 based on your total taxable income:
| Filing status | 0% up to | 15% up to | 20% above |
|---|---|---|---|
| Single | $49,450 | $545,500 | $545,500 |
| Married filing jointly | $98,900 | $613,700 | $613,700 |
| Head of household | $66,200 | $579,600 | $579,600 |
Gain on property held one year or less is short-term and taxed at ordinary rates of 10% to 37%, with the 37% bracket starting at $640,600 for single filers and $768,700 for joint filers. Public Law 119-21, enacted July 4, 2025, made those seven ordinary rates permanent; the Congressional Research Service notes the underlying 2017 law did not change the rates on capital gains.
The 3.8% NIIT applies to the lesser of your net investment income or the amount your modified adjusted gross income exceeds $200,000 (single or head of household), $250,000 (joint), or $125,000 (married filing separately). The IRS states those thresholds "are not indexed for inflation," so each year more sellers cross them. Gain excluded under Section 121 is not net investment income. Gain on property held in an active trade or business that is not a passive activity is also excluded under Treas. Reg. §1.1411-4, a point that matters for owner-operators and is covered in the park section below.
Calculating your taxable gain: cost basis, improvements, selling costs
Your taxable gain is the sale price minus selling expenses, minus your adjusted basis. Adjusted basis starts with what you paid and grows with purchase closing costs and capital improvements. Depreciation you have taken reduces it. IRS Publications 551 and 523 list what belongs in each bucket.
Costs that increase basis:
- Purchase closing costs: Pub. 551 includes abstract fees, legal fees for the title search and deed, recording fees, surveys, transfer taxes, and owner's title insurance.
- Capital improvements and construction: A full roof replacement, paving a driveway, a new septic system, extending utility service lines, and water connections all add to basis; so do assessments for local improvements such as road paving. For anything you built, include labor, materials, contractor and architect fees, permits, and utility connection charges.
Amounts that decrease basis include depreciation. Every dollar allowed on buildings and land improvements comes out of basis, whether or not you claimed it. The same applies to equipment.
A deducted storm loss reduces basis, and insurance reimbursement reduces it even when the repairs restored the property. A payment for a utility easement or right-of-way reduces the basis of the affected land.
Selling expenses that reduce the amount realized include sales commissions, advertising, legal fees, and loan charges you paid on the buyer's behalf. Transfer taxes you paid as seller can be treated as selling expenses.
Routine upkeep does not count toward basis: painting, fixing leaks, replacing broken hardware, and the annual septic pumping are current expenses, while the 2011 drain-field replacement is an improvement. Pub. 551 states the line plainly: "Don't add to your basis costs you can deduct as current expenses." That distinction is why a box of old invoices from the bathhouse rebuild is worth more than it looks.
Key exclusions and scenarios
Owners who live at the park or inherited it often ask about the home-sale exclusion and how age or inheritance affects the tax. A worked example shows how the combined rates apply to a specific gain.
Do you pay capital gains on a primary residence?
You can exclude up to $250,000 of gain on your main home, or $500,000 on a joint return, if you owned and used it as your principal residence for at least two of the five years ending on the sale date. Pub. 523 counts that as 24 months (730 days), which need not be continuous. On a joint return, only one spouse must meet the ownership test, but both must meet the residence test. You can use the exclusion only once every two years. Those dollar amounts have not changed since 1997 and are not indexed, as the Journal of Accountancy noted in May 2025.
California conforms. FTB Publication 1001 states the same $250,000/$500,000 amounts and the two-of-five-year test, with one state modification for Peace Corps service.
A partial exclusion is available if you sell before the two years are up because of a job change (the new workplace must be at least 50 miles farther from the home) or a health reason. Unforeseen circumstances can also qualify, including death or divorce, as can a natural disaster. The partial amount is the full exclusion multiplied by the fraction of 24 months you qualified. Someone who lived in the home 12 months before a qualifying move could exclude $125,000.
Owner-operators face two specific limits. First, gain attributable to depreciation taken after May 6, 1997 cannot be excluded and must be recaptured under Section 1250. If you depreciated the owner's residence as part of the park, that portion is taxable.
Second, periods after 2008 when neither spouse used the property as a main home are "nonqualified use," and the gain allocated to those periods is not excludable. Pub. 523 also notes you must report the sale on Form 8949 if you receive a Form 1099-S, even when all the gain is excluded.
As of mid-October 2026, several federal bills would raise or remove the $250,000/$500,000 cap, including H.R. 4327 (the No Tax on Home Sales Act) and H.R. 1340 with its Senate companion S. 3332. Each shows only "Introduced" on Congress.gov with a committee referral. Given California's fixed conformity date of January 1, 2025, a federal change would likely not reach the state return without separate California legislation.
Selling after 65 or selling an inherited home
No age-based capital gains exemption exists in current federal or California law. The one-time $125,000 exclusion for sellers 55 and older was replaced by the current $250,000/$500,000 rule for sales after May 6, 1997, as the IRS's own 1997 edition of Pub. 523 explains. A 70-year-old who sells a park that was never their residence gets no exclusion for age; the Section 121 tests are the same at every age.
Inheriting property is a different story. Under IRC §1014, the basis of inherited property is its fair market value on the date of death. A second-generation owner whose parent bought the park in 1972 and died in 2024 starts with a basis equal to the 2024 value, not the 1972 purchase price. Decades of appreciation drop out of the taxable gain. California uses the same basis for property inherited on or after January 1, 1987, per FTB Publication 1001.
California's community property rules amplify this for married couples. Pub. 555 explains that when one spouse dies, both halves of community property take the date-of-death value, not only the decedent's half. Its example: community property with an $80,000 basis and a $100,000 value at death gives each half a $50,000 basis. By contrast, only the decedent's half of a spousal joint tenancy is stepped up.
The treatment applies regardless of how title was held, under Rev. Rul. 87-98, as long as the property is community property under state law.
Proposition 19 belongs in a different column. It is a property-tax rule, not an income-tax rule. Effective February 16, 2021, it limits the parent-to-child reassessment exclusion to a "family home" or "family farm," and the Board of Equalization sets the value cap at the factored base-year value plus $1,044,586 for the period from February 16, 2025 through February 15, 2027. The statute defines a family farm as real property under cultivation, used for pasture or grazing, or producing an agricultural commodity. A campground's land ordinarily fits neither definition.
The BOE's materials describe no income-tax deduction or credit, and no capital-gains exclusion of any kind, so Prop 19 changes what your child pays the county assessor, not what either of you owes the FTB on a sale.
Worked example: what you owe on a $100,000 and an $800,000 gain
Assume the property was your main home for well over two years, the gain is long-term, and the gain is your only income in the year of sale. The illustration ignores deductions and credits on both returns, so treat it as the shape of the bill rather than the bill itself.
A $100,000 gain produces no tax for either a single or a joint filer. The $250,000 or $500,000 exclusion covers all of it, excluded gain is not subject to NIIT, and California conforms. You would still report the sale on Form 8949 if the closing agent issued a 1099-S.
An $800,000 gain leaves $550,000 taxable for a single filer and $300,000 for a joint filer. Applying the 2026 figures above:
| Item | Single ($550,000 taxable) | Joint ($300,000 taxable) |
|---|---|---|
| Federal long-term gain | $75,308 (0% on $49,450, 15% to $545,500, 20% above) | $30,165 (0% on $98,900, 15% on the rest) |
| NIIT at 3.8% | $13,300 (on $350,000 above the $200,000 threshold) | $1,900 (on $50,000 above the $250,000 threshold) |
| California (2026 announced brackets) | $50,017 | $20,535 |
| Combined | $138,625 | $52,600 |
The joint NIIT figure matches the IRS's published example of a couple with $100,000 recognized after the exclusion and $300,000 of MAGI.
The difference in the worked example comes entirely from filing status: a larger exclusion, a wider 0% band, a higher NIIT threshold, and doubled California brackets.
Rental, investment and park property: recapture and deferral
Business and investment property gets no Section 121 exclusion, and the depreciation you took over the years comes back as taxable gain at closing. The federal treatment depends on the property:
- Gain up to the straight-line depreciation taken on buildings is "unrecaptured Section 1250 gain," taxed at a maximum of 25% under IRC §1(h).
- Gain on equipment and vehicles is ordinary income up to the depreciation taken, including any Section 179 or bonus depreciation. The same rule applies to other Section 1245 property.
Only gain above the depreciation layer gets the 0/15/20% treatment.
California has no 25% ceiling. All of it, recapture included, is ordinary income at the brackets above. The state also does not conform to bonus depreciation and caps the Section 179 deduction at $25,000 with a phaseout starting at $200,000, per FTB Publication 1001. That means your California basis is often higher than your federal basis, and your California gain and recapture are correspondingly different.
You report the difference on Schedule D-1, which is attached only when the state and federal numbers diverge.
A Section 1031 exchange defers both federal and state tax if you trade the park's real property for other real property held for business or investment. Since 2018, the IRS limits like-kind treatment to real property; the IRS states that machinery, equipment, vehicles, and intangible business assets no longer qualify. The golf cart cannot qualify; the store inventory and goodwill are also excluded.
You must identify replacement property within 45 days and receive it within 180 days.
If the replacement property is outside California, the state keeps a claim on the deferred gain. For exchanges in taxable years beginning on or after January 1, 2014, you must file FTB Form 3840 for the year of the exchange and every year afterward until the California-source gain is recognized, even if you move to Nevada and never file another California return.
The instructions state that the source of the gain "is preserved without regard to when such gain or loss may be recognized." If you stop filing, the FTB can estimate the deferred gain and assess tax plus interest and penalties.
An installment sale spreads the gain across the years you receive payments under IRC §453. Each payment includes interest; the remaining amount is split between return of basis and gain. You file Form 6252 every year until the final payment.
Two limits apply directly to a park. The Form 6252 instructions require you to report recapture under Sections 1245 and 1250 in full in the year of sale even if you received no cash. And if the price exceeds $150,000 and the installment obligations arising in the sale year and outstanding at year-end top $5 million, Section 453A charges interest on the deferred tax; California applies the same rule using its own top rate, as the FTB installment-sale instructions explain.
California also requires the buyer to keep withholding on the principal portion of each installment payment under the Form 593 instructions, which is covered next.
How this fits a California park or campground sale
A park sells as a bundle, and the first tax decision is how the price divides among the parts. Under IRC §1060, buyer and seller each file Form 8594 allocating the price across seven asset classes, and a written allocation in the purchase agreement binds both parties unless the IRS determines it is inappropriate. For a typical park, the Form 8594 instructions place the pieces as follows:
- Class IV: Camp store inventory, taxed as ordinary income.
- Class V: Land, the bathhouse and office, roads, hookups, furniture, vehicles, and equipment, with land and buildings under Section 1231 and 1250 rules and equipment under Section 1245.
- Class VI: Customer lists, reservation data, the park's trade name, and any covenant not to compete, with non-compete payments taxed as ordinary income.
- Class VII: Goodwill and going concern value, generally a capital asset.
Sellers and buyers pull in opposite directions here. The ABA's Tax Lawyer notes that buyers typically want more allocated to inventory and fast-depreciating equipment, while sellers want more in goodwill, which produces capital gain. On the California return the distinction shrinks, because every class is ordinary income to the state. The federal difference is what you negotiate over.
The hookups, pedestals, septic system, and park-owned underground utilities are a gray area with no RV-park-specific ruling in the retrieved authority. The IRS's own cost segregation guide says there is "no general bright-line test" for the Section 1245 versus 1250 split, and the closest guidance, Rev. Rul. 80-93 on a mobile-home park, turned on who owned and maintained the distribution lines. Whether the park counts as a nonpassive trade or business for NIIT purposes is also unsettled; the 500-hour material participation test and the "average customer use of seven days or less" exception in Treas. Reg. §1.469-1T are the levers a CPA will examine, but no retrieved Tax Court case or IRS ruling decides the question for an RV park. These two points deserve a CPA's attention before the purchase agreement is signed, not after.
The buyer or escrow holder calculates closing withholding separately from your final tax liability. California requires the buyer or escrow holder to withhold 3 1/3% (.0333) of the total sales price on any sale over $100,000 unless you certify an exemption on Form 593. That figure is a prepayment on the gain, not a separate tax, and it has nothing to do with your basis.
FTB Publication 1016 requires personal property sold with the real estate to be included in the withholding base if the contract doesn't state it separately, which is one more reason to break out the equipment and inventory in the agreement.
The mismatch between withholding and liability runs both ways. On a $2 million sale, 3 1/3% withholding is about $66,600. If your gain after basis and selling costs is $1.2 million and you file as a single taxpayer, the 2026 brackets put the California tax on that gain near $129,800, including the 1% surcharge on the amount over $1 million. The withholding covers roughly half, and the rest is due with your return.
If instead you inherited the park last year and the gain is small, the same $66,600 is mostly a refund you wait for until you file.
Form 593 gives you two ways to narrow the gap. You can elect the gain-on-sale method, withholding your rate (12.3% for individuals) on the estimated gain from Part VI instead of 3 1/3% on the price. Or you can certify an exemption in Part III: the lines include a principal residence under Section 121 or a loss or zero gain. An involuntary conversion is another listed exemption.
If part of the property was your home, the instructions call for a second Form 593 covering the non-residence portion, using the same allocation you used for depreciation.
The withheld amount is claimed as a credit when you file; the 2025 Form 540 carries it on line 73, with a copy of Form 593 attached to the lower front of the return.
On the federal side, the closing agent files Form 1099-S reporting the sale. You then report the business property on Form 4797, where Part III computes recapture, and carry any Section 1231 gain to Schedule D. Any capital-asset portion, such as goodwill, goes on Form 8949 and Schedule D.
California requires Schedule D (540) or Schedule D-1 only when the state figures differ from the federal ones, which, given the depreciation differences above, they usually do for a park.
Planning ahead: reducing and deferring the tax
The tools for a primary home and the tools for business property do not overlap much, so it helps to sort your property into those two groups before planning anything.
- The owner's residence: Confirm you meet the Section 121 tests: 24 months of ownership and use in the last five years. Document every improvement to the home since purchase, and separate the residence from the business for depreciation and for Form 593. A surviving spouse who has not remarried can still use the $500,000 exclusion if the sale closes within two years of the death and the couple met the joint-exclusion tests beforehand, including the limit on another excluded sale within two years. IRS Publication 523 explains these conditions, which affect timing after a loss.
- The park itself: A 1031 exchange of the real property defers tax, with Form 3840 filings if you buy out of state. An installment sale spreads the gain but not the recapture.
You can also time a park sale to a year when other income is low enough to keep more of the gain in the 15% federal band and the 9.3% California band. The purchase-price allocation negotiated with the buyer can change federal character rather than timing, as the ABA's allocation analysis explains.
Estate planning changes the arithmetic more than any of those. The date-of-death basis under Section 1014 removes all pre-death appreciation from the gain, and California community property gets that treatment on both spouses' halves. A lifetime gift to a child does the opposite: the attorney Judith Y. Tang of Fennemore notes that a gift keeps the parents' carryover basis and forgoes the step-up. A family deciding between transferring the park now and holding it until death is choosing between two very different tax outcomes for the next generation, and that choice belongs in the same conversation as who will run the office and answer the reservation line.
A CPA who knows outdoor hospitality earns their fee on two areas the general rules don't settle: your operation's status as a nonpassive trade or business for NIIT, and the treatment of the property's components. That includes classifying hookups and site utilities for recapture and allocating the price among land, improvements, equipment, and goodwill. The CPA needs your hours and records, along with the facts about your property, which is why no article can supply those answers.
If you are beginning to think about what comes next for your park, start a conversation. You do not need to have the timing or structure figured out, and the questions above can sit alongside the ones about staff and regular guests. You can also discuss what you'd want to stay the same. If email is easier, write to George at george@dirt.ventures and tell us a little about your park.
FAQ
How much is capital gains tax on a $100,000 gain in California?
On a primary residence that meets the two-of-five-year test, nothing: Section 121 excludes the full $100,000 for both single and joint filers, and California conforms. On park property or a home held as a rental or second home, the gain is taxed at the federal long-term rate your total income reaches (15%, with 0% for lower incomes and 20% for higher incomes), plus 3.8% NIIT if your MAGI exceeds $200,000 single or $250,000 joint, plus California's bracket rate on the full amount.
What are the capital gains rates for 2026?
The federal long-term rate stays at 15%, with 0% for lower incomes and 20% for higher incomes. The 15% band ends at $545,500 for single filers and $613,700 for joint filers. Short-term gains use the seven ordinary brackets of 10% to 37%. California has no capital gains rate of its own; the gain is ordinary income taxed from 1% to 12.3%, with the 12.3% bracket starting at $768,213 (single) or $1,536,426 (joint) under the FTB's announced 2026 figures, plus 1% on taxable income over $1 million.
Do I pay capital gains after 65?
Yes, at the same rates as everyone else. The former one-time $125,000 exclusion for sellers 55 and older ended with sales after May 6, 1997. Age does not change the Section 121 tests or the NIIT thresholds. California's brackets are also the same regardless of age. Proposition 19 lets homeowners 55 and older transfer their property-tax base to a replacement home up to three times, but that is a county assessor benefit, not an income-tax exclusion.
What happens to the gain above the exclusion?
The excess is taxed as a long-term capital gain. For a married couple, gain above the $500,000 exclusion is subject to federal tax at 0% to 20% depending on income. NIIT applies at 3.8% on the lesser of net investment income or MAGI above $250,000, and California taxes the gain at ordinary rates. Depreciation taken after May 6, 1997 on the home is never excluded and is taxed as recapture regardless of the gain's size.
Does California withhold capital gains tax at closing?
Yes. On sales over $100,000, the escrow holder withholds 3 1/3% of the sales price under Form 593 unless you certify an exemption, such as a qualifying principal residence or a loss on the sale. You can instead elect to have 12.3% withheld on your estimated gain. Either way the withholding is a prepayment credited on your California return, and the final tax depends on your basis, recapture, allocation, and other income, so expect a balance due or a refund rather than an exact match.