Capital gains tax is the federal and California tax on the profit from selling an investment property held more than one year. Combined rate for most LA multifamily sellers: approximately 33-40% including state and NIIT.
Federal long-term capital gains tax rates: 0%, 15%, or 20% depending on income. Most LA multifamily sellers are at 20%. Net Investment Income Tax (NIIT) adds 3.8% for higher earners. Combined federal: 23.8%.
California taxes capital gains as ordinary income — up to 13.3% for top-bracket filers. Combined federal + California on most significant LA multifamily gains: 33-37%, plus depreciation recapture for the depreciation portion.
For LA multifamily sellers with $3M+ gains and no 1031, combined tax can exceed $1M. This is the single largest cost of a straight sale and the single biggest reason sophisticated sellers use 1031 exchanges to defer.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
Thinking about selling? Get a no-obligation evaluation from a broker with $1.41 billion across 254 closed LA multifamily transactions.
Request Free Evaluation →