Tax Considerations for Non-Resident Home Buyers in California

Gina Piper March 14, 2024

If you're thinking of purchasing a home in California but reside in another state, there are some important tax implications to understand. As a non-resident, you'll need to pay both state and local taxes on any property you own in The Golden State. Let's explore some key things to know about taxes for out-of-state home buyers in California.

Income and Capital Gains Taxes

As a non-resident, you'll owe California income taxes on any rental income generated from a California property. You'll also owe state capital gains taxes if you sell the home and realize a profit. The current capital gains tax rate for non-residents is 13.3%. Be sure to work with a qualified tax professional to properly report any rental income or capital gains to the California Franchise Tax Board.

Property Taxes

All homeowners in California, whether residents or not, must pay annual property taxes. Property taxes are assessed by county governments and based on the assessed value of the home. Tax rates can vary widely by location, so do your research on typical property tax burdens in the area you're considering. Higher taxes could impact your purchase price calculation.

Withholding Requirement

When you close escrow on a home purchase in California as a non-resident, the title company is required to withhold 3.75% of the final purchase price. This ensures proper payment of capital gains taxes if you sell. You can file for a refund of any overpayment once your actual tax liability is determined. Work with your real estate agent, lender and closing attorney on complying with this requirement.

If you're in the market to purchase a second home or investment property in California, working with an experienced real estate team can help navigate these tax implications. Here at Elation Real Estate, our agents have deep expertise assisting both resident and non-resident buyers. However, neither the author of this blog nor anyone at Elation is a tax professional. For accurate tax or accounting advice, always consult a qualified CPA. Understanding these key considerations early in the process will help ensure a smooth transaction and ongoing tax compliance as a California property owner.

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