Selling your Pasadena home and wondering how much you actually keep after taxes? You are not taxed on your sale price, you are taxed on your gain. The key is your adjusted cost basis and how federal and California rules apply. In this guide, you will learn how to calculate basis, apply the home sale exclusion, prepare for California withholding, and budget for local transfer taxes. Let’s dive in.
Capital gains basics in Pasadena
Your taxable capital gain equals your amount realized on the sale minus your adjusted cost basis. Your basis is what you paid plus qualified improvements and certain closing costs, adjusted for items like depreciation. The IRS explains how basis works in its guidance on the basis of assets.
For federal taxes, gains are short term if you held the home one year or less and long term if you held it more than a year. Many sellers qualify to exclude up to $250,000 of gain if single or $500,000 if married filing jointly when they meet the 2‑of‑5 ownership and use tests under the home sale exclusion rules described in IRS guidance for selling your home. High earners may also owe the 3.8% Net Investment Income Tax as explained in this overview of capital gains and NIIT.
California does not offer a lower capital gains rate. The state treats gains as ordinary income and taxes them at regular state rates. See the Franchise Tax Board’s instructions for nonresidents and part‑year residents for how California taxes income, including gains, in the FTB guidance.
Build your adjusted cost basis
Here is what typically increases your basis:
- Purchase price of the property. See the IRS on basis of assets.
- Certain acquisition costs that are capitalized, such as title and recording fees and transfer taxes paid at purchase when applicable.
- Capital improvements that add value or extend life, like a new roof, room addition, major HVAC, or a full kitchen remodel.
These items reduce basis:
- Depreciation allowed or allowable while the property was used for rental or business. The IRS explains depreciation and sale treatment in Publication 544.
- Casualty losses, insurance reimbursements, and certain credits that were previously deducted. See basis of assets.
Keep organized records. Save your purchase closing statement, receipts and permits for improvements, any depreciation schedules, and escrow statements. The IRS recommends retaining records needed to prove basis and adjustments in its basis guidance.
Improvements vs. repairs
Capital improvements are long‑term upgrades that add value, extend useful life, or adapt the home to new uses. Routine repairs and maintenance, like paint or a one‑off appliance fix, generally do not increase basis. When in doubt, keep your receipts and note dates and scopes of work.
Local taxes and closing costs in Pasadena
Los Angeles County charges a documentary transfer tax that is commonly calculated at 1.10 per 1,000 dollars of sales price. Pasadena is not commonly listed among cities that impose an additional city transfer tax, but you should confirm current rules before you close. Review the county’s documentary transfer tax guidance and verify any local changes with escrow.
The home sale exclusion and reporting
If you owned and used the home as your main residence for at least two of the five years before sale, you may exclude up to 250,000 dollars of gain if single or 500,000 dollars if married filing jointly. You can generally use this exclusion once every two years. The IRS outlines the tests and partial exclusion exceptions for job change, health, or unforeseen circumstances in its selling your home guidance.
If your entire gain is excluded, you often do not need to report the sale. If you receive Form 1099‑S at closing, you must report the transaction even if your exclusion reduces taxable gain to zero. The IRS explains reporting, including Form 8949 and Schedule D, in its FAQs on home sales and basis.
Renting your home before selling
If you rented your home or used part of it for business, depreciation you claimed or could have claimed reduces your basis and must be recaptured when you sell. The portion of gain equal to that depreciation is not eligible for the home sale exclusion and can be taxed at up to 25% as unrecaptured section 1250 gain. See the IRS rules on depreciation recapture in Publication 544.
Inherited or gifted Pasadena homes
Inherited property generally receives a basis equal to its fair market value on the date of death. That step‑up often reduces or eliminates gain if you sell soon after inheriting. See the IRS discussion of basis in basis of assets.
Separately, California’s Proposition 19 affects property tax reassessment for inherited property. If the heir does not use the home as a primary residence and file timely, the property will generally be reassessed to current market value for property tax purposes. Learn more about Prop 19 rules from county assessor guidance, such as this Prop 19 overview.
Withholding at closing in California
California real estate withholding is a prepayment of state income tax. Unless you qualify for an exemption, escrow may withhold from your proceeds and report on Form 593. Review exemptions and procedures in the FTB’s real estate withholding guidance.
If a seller is a foreign person, federal FIRPTA withholding generally requires the buyer or withholding agent to withhold 15% of the amount realized. There are exceptions and processes to request reduced withholding. See the IRS overview of FIRPTA withholding.
Quick prep checklist
- Gather your purchase closing statement, improvement receipts and permits, and any depreciation schedules. See the IRS on basis of assets.
- Confirm whether any city transfer tax applies and budget for the county documentary transfer tax using LA County’s guidance.
- Estimate your adjusted basis and model possible taxable gain after the home sale exclusion. Consider scenarios with and without depreciation recapture if you rented the home.
- Coordinate early with escrow on California Form 593 and, if applicable, any FIRPTA certifications.
Ready to plan your sale
When you understand basis, exclusions, and withholding, you can price with confidence and avoid surprises at closing. If you want a private, strategic plan tailored to your Pasadena property and timeline, connect with Gus Ruelas for discreet, executive‑level representation.
FAQs
How do I figure cost basis when selling a Pasadena home?
- Start with what you paid, add capital improvements and certain closing costs, then subtract items like depreciation and casualty losses as outlined in the IRS basis guidance.
Do I pay a Pasadena city transfer tax when I sell?
- Los Angeles County charges 1.10 per 1,000 dollars of price, and Pasadena is not commonly listed as adding a separate city transfer tax, but you should verify current rules with escrow using the county’s transfer tax guidance.
How does California tax my home sale gain?
- California includes capital gains in ordinary taxable income rather than using a special capital gains rate, as explained in the FTB instructions.
What if I rented my Pasadena home before selling it?
- Depreciation claimed or allowable reduces your basis and must be recaptured, and that portion of gain is not excludable under the home sale exclusion per Publication 544.
How do inherited Pasadena homes affect taxes when I sell?
- Inherited property usually gets a date‑of‑death step‑up in basis for federal capital gains, while Prop 19 can trigger property tax reassessment if the home is not used as a primary residence; see the assessor’s Prop 19 overview.
Will escrow withhold taxes from my sale in California?
- Escrow may withhold and report on Form 593 unless you qualify for an exemption, and will also handle FIRPTA if a seller is a foreign person; review the FTB’s withholding guidance and the IRS on FIRPTA.
