Selling your Walnut Creek home comes with a lot of moving parts. Taxes should not be a last-minute surprise. With a clear checklist, you can keep more of your proceeds, avoid avoidable withholding, and stay on top of key forms and deadlines. This guide walks you through the federal, California, and local items that most sellers should review. Let’s dive in.
Walnut Creek seller tax snapshot
- You may exclude up to $250,000 of gain if single, or up to $500,000 if married filing jointly, when you meet the 2-out-of-5-year ownership and use tests under the federal principal residence rule. Review the basics in IRS Topic No. 701 on the sale of your home.
- California taxes any gain that is not excluded by federal rules and treats capital gains as ordinary income on your state return. See the state filing booklet and rate schedules from the Franchise Tax Board.
- Escrow may have to withhold California tax at 3 1/3% of the sales price unless you submit the right Form 593 exemption or calculation before closing. Review the Form 593 instructions.
- Expect a Contra Costa County documentary transfer tax on your closing statement, and verify if any city tax applies. Check the county’s FAQ on transfer tax and confirm amounts with escrow.
- Special cases like prior rental use, foreign seller status, or Prop 19 portability can change your tax outcome. See the IRS details on depreciation and recapture and the state’s Prop 19 overview from county assessors.
Understand your federal taxes
Home sale exclusion basics
If you owned and lived in the home as your main home for at least 2 of the 5 years before the sale, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly. Some sellers qualify for a partial exclusion due to certain life events. Start with IRS Topic No. 701 on the sale of your home to confirm eligibility.
Reporting your sale
If you receive Form 1099-S at closing, you generally must report the sale on your federal return, even if your gain is fully excluded. If you do not receive a 1099-S and your entire gain is excluded, you may not need to report the sale, but follow IRS guidance in Topic No. 701 on reporting rules. Keep your closing statement and improvement receipts with your tax records.
Capital gains rates and NIIT
If your gain is taxable, federal rates depend on how long you held the home. Long-term gains generally receive favorable rates, and some high earners owe an added 3.8% Net Investment Income Tax. For details on investment income and reporting, review IRS Publication 550 on investment income.
Rental or business use and depreciation
If you ever rented out the home or used part of it for business and claimed or could have claimed depreciation, the depreciation portion cannot be excluded under the home sale rule. This amount is usually taxed at special rates and reported separately. IRS Publication 544 explains depreciation recapture and sale reporting.
Foreign seller rules (FIRPTA)
If a seller is a non-U.S. person, the buyer may be required to withhold a percentage of the sales price under FIRPTA. Escrow typically requests a seller residency certification to confirm status early. Review the IRS overview of FIRPTA withholding.
California and local items to review
State income tax treatment
California generally taxes capital gains as ordinary income. Any gain not excluded federally is typically included on your California return and taxed at state rates. See the FTB’s Form 540 booklet and rate schedules in the California 540 booklet.
California real estate withholding
Unless exempt, escrow must withhold and remit an estimate to the Franchise Tax Board, commonly 3 1/3% of the sales price. You can often reduce or avoid withholding by filing the correct Form 593 exemption or an optional gain-on-sale calculation before closing. The Form 593 instructions explain who qualifies and how to complete the forms.
Contra Costa transfer taxes
Expect a county documentary transfer tax computed from the sale price and shown on your closing statement. Some cities add their own tax, so confirm whether Walnut Creek adds a city levy. Review the county’s documentary transfer tax FAQ and ask escrow to confirm totals and who pays per contract.
Prop 19 portability for eligible sellers
If you are 55 or older, severely disabled, or a disaster victim, you may be able to transfer a lower assessed value to a replacement home in California under Prop 19, subject to limits and filing steps with the county assessor. This can reduce future property tax on your next home. See an assessor overview of Proposition 19 portability for what to expect.
Your step-by-step tax checklist
Before you list
- Gather your original purchase closing statement and all receipts for capital improvements like remodels, additions, a new roof, or major systems. IRS Publication 550 covers keeping records to support your basis.
- Map your use history. Note the dates you lived in the home as your main home and any periods of rental or business use. Review the home sale tests in IRS Topic 701.
- Flag special circumstances. These include earlier use of the exclusion within the last two years, divorce transfers, inherited property, or planned installment sales. See IRS Publication 544 for special sale rules.
During escrow
- Submit California withholding forms. Complete the seller sections of Form 593 to claim an exemption or gain-on-sale method before closing to avoid automatic 3 1/3% withholding. Use the Form 593 instructions to prepare.
- Confirm FIRPTA status. If there is any chance of non-U.S. seller status, expect FIRPTA procedures and withholding. See the IRS guidance on FIRPTA.
- Verify transfer taxes. Ask escrow to confirm the county and any city transfer tax and how the contract assigns payment. Review the county’s FAQ for the local framework.
Closing and after closing
- Watch for Form 1099-S. If you receive it, you will generally report the sale even if your gain is excluded. See IRS Topic 701.
- Address depreciation recapture if applicable. If you had rental or business use, coordinate with a tax pro to report recapture properly using the rules in Publication 544.
- Organize records. Keep closing statements, improvement receipts, 1099-S, and any California or FIRPTA withholding certificates with your tax files. IRS Publication 550 explains recordkeeping.
At tax time
- Estimate taxes early. If you have non-excluded gain, include potential NIIT and California tax in your estimates to avoid penalties. Use IRS guidance in Publication 550.
- File the right forms. Use Form 8949 and Schedule D for the sale, Form 4797 if you have business or rental use, and claim any California Form 593 credits on your state return. The reporting basics are summarized in IRS Topic 701.
Common scenarios and gotchas
- Prior rental or home office. Depreciation recapture is not excludable and is taxed at special rates. See Publication 544 for how to allocate and report.
- Recent prior sale. If you used the home sale exclusion on another property within the last two years, you may not qualify for the full exclusion again. Check IRS Topic 701.
- Inherited property. Basis rules for inherited homes differ and can change the gain you recognize. Review the inheritance sections in Publication 544.
- Installment sale. If you carry a note, depreciation recapture generally is taxed in the year of sale. See Publication 544 for installment sale reporting.
- Dual withholding. A foreign seller can be subject to both FIRPTA and California withholding. Coordinate early using FIRPTA guidance and Form 593 instructions.
Local guidance with a boutique touch
A smooth sale starts with a clear plan. From organizing your documents to coordinating escrow details like Form 593 and transfer taxes, a trusted local advisor helps you get ahead of the details. If you are weighing timing, staging, or a downsizing move, let’s build a plan that fits your goals and protects your proceeds. Reach out to Christina Beil to prepare your Walnut Creek sale with confidence.
FAQs
What taxes do Walnut Creek home sellers typically pay?
- Most sellers review federal capital gains taxes and the home sale exclusion, California income tax on any non-excluded gain, potential California real estate withholding, and Contra Costa County transfer tax.
How does the $250k/$500k home sale exclusion work?
- If you owned and used the home as your main home for two of the last five years, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly; see IRS Topic 701.
Does Walnut Creek have a city transfer tax?
- Contra Costa County charges a documentary transfer tax, and some cities add a city tax; confirm with escrow whether Walnut Creek adds a city tax and who pays per your contract. Review the county transfer tax FAQ.
Can I avoid California’s 3 1/3% withholding at closing?
- Yes, if you qualify and file the correct Form 593 exemption or use the gain-on-sale calculation before closing; see the FTB’s Form 593 instructions.
What if I rented out my home before selling?
- Depreciation claimed or allowable for rental or business use is not excludable and may be taxed at special rates; see IRS Publication 544.
Who is affected by FIRPTA withholding?
- If a seller is a non-U.S. person, the buyer typically withholds a percentage of the sales price; see the IRS FIRPTA overview for thresholds and procedures.
