In California, capital gains are taxed at the same rate as regular income, which is unlike many other states. There is no distinction between long-term and short-term capital gains. California tax rates on capital gains range from 1% to 13.3%, and there may also be a "mental health" tax for high-income earners.
California does not give capital gain a lower rate. The Franchise Tax Board taxes it as ordinary income. Holding the asset for more than a year does not change the California rate.
California's regular personal income tax rates run from 1% to 12.3%. The rate depends on your total taxable income, including the gain from the sale. Taxable income over $1 million also owes a 1% Behavioral Health Services Tax, formerly called the Mental Health Services Tax. That surcharge applies only to the income above $1 million. Combined, the top California marginal rate on a large gain is 13.3%.
Federal tax still uses the long-term and short-term split. A California seller with a long-term gain can owe 20% federal tax, plus 3.8% NIIT, plus up to 13.3% to California. The stacked rate on a large long-term gain can exceed 37%.
Because California follows your taxable income, timing matters. An all-cash closing in one year can push you through several brackets and across the $1 million line. An installment sale can spread California tax across years. Report California installment income on FTB 3805E. A move out of California before the sale can change the result, but residency and source rules are fact-specific. Get advice before you rely on a move.
California does not conform to the federal QSBS exclusion or rollover under sections 1202 and 1045. If you exclude gain on the federal return, you still enter the entire gain on California Schedule D.