Q:

What is the California capital gains tax rate?

A:

As of 2014, the capital gains tax rate for California income taxes is 10.3 percent for individuals who make between $254,250 and $305,100 per year, according to Robert W. Wood for Forbes. The rate goes up to 13.3 percent for people who make $1 million or more annually.

California has the highest marginal capital gains tax rate in the United States at 33 percent. This combined figure takes into account the federal capital gains tax rate, deductions for federal income taxes and a lack of itemized deductions, notes Kyle Pomerleau and Richard Borean for the Tax Foundation. The average marginal capital gains tax rate for all 50 states is 28.7 percent, as of February 2014. California has the highest state capital gains tax rate in the United States among all 50 states.

The capital gains tax rate encourages people to save less and invest less, and higher capital gains taxes have negative impacts on the long-term economy, explains Wood. Residents of California have the second-highest capital gains tax in the world, behind only Denmark at 42 percent. France is third at 32.5 percent and Finland places fourth at 32 percent.

A capital gain occurs when someone sells an asset for a more expensive price than when he bought the asset, according to the IRS. For example, a person who buys a diamond for $1,000 and then sells it for $1,500, pays a capital gains tax on $500.


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