How much do capital gains taxes contribute to CA income

1. California taxes capital gains as ordinary income — what that means for rates

California does not give long‑term gains a special lower rate; gains are added to other taxable income and taxed under the same brackets that top out at 13.3% for very high state taxable income, so a large sale can push a taxpayer into higher state brackets ^{[1] [5]}. Multiple tax guides and the Franchise Tax Board make the point that there is no state distinction between short‑ and long‑term capital gains — unlike federal law, which offers 0/15/20% long‑term rates — so Californians face state tax calculated like ordinary wages ^{[6] [7] [2]}.

2. How capital gains flow into the state budget: a sizable, volatile share

The governor’s budget and revenue estimates show that capital gains compose a material share of personal income tax revenues: about 16% of personal income tax liability on average across a recent 10‑year period, with specific line items and transfers linked to capital gains projections in the billions of dollars ^[3]. The budget documents also model volatility: authors note changes in the realizations’ share of personal income and project capital gains‑related transfers of approximately $2.8 billion (2023–24), $3.2 billion (2024–25) and $3.6 billion (2025–26) to particular funds ^{[3] [4]}.

3. Why volatility matters for California finances and policy

Because capital gains are concentrated among higher‑income taxpayers and realized irregularly, the revenue stream is lumpy. The budget materials explicitly model swings — for example, showing the realizations’ share of personal income and adjusting revenue forecasts by double‑digit percentages in some years — which creates budgeting risk if policymakers rely on high one‑time gains to fund ongoing programs ^{[4] [3]}. That pattern explains frequent caution in state budget forecasting and the use of reserves or transfers when gains spike ^[3].

4. The interplay with federal tax rules and total tax burden

Federal law still distinguishes short‑ and long‑term gains (0/15/20% bands and some higher rates for collectibles), so Californians typically pay a layered tax bill: federal capital gains tax plus California ordinary income tax on the same gain, and sometimes the 3.8% Net Investment Income Tax at the federal level — meaning combined marginal rates can be substantially higher than either jurisdiction’s standalone rate ^{[7] [5] [8]}. State guides emphasize that the absence of a state capital‑gains preference can lead investors to “overpay” relative to a state that taxes gains more leniently ^[5].

5. Practical consequence for taxpayers and housing markets

Because the state treats gains from home sales and other assets as taxable income (though federal exclusions for principal residences still apply federally), sellers in high‑value California markets can face meaningful state tax on realized gains unless they qualify for federal housing exclusions or other carve‑outs; the Franchise Tax Board and real‑estate guides point to the $250,000/$500,000 federal exclusions and remind taxpayers to report differences on state Schedule D when applicable ^{[9] [1] [10]}.

6. Competing perspectives and limits of available reporting

Most sources cited here — the Franchise Tax Board, state budget documents, tax guides and financial advisors — agree on the core facts: California treats capital gains as ordinary income and capital gains constitute a material, volatile slice of income‑tax revenue ^{[1] [3] [2]}. Some advisory outlets frame California’s approach as a reason to plan or relocate; budget documents stress volatility and forecast impact ^{[5] [4]}. Available sources do not mention specific up‑to‑date breakdowns of what percent of total state General Fund receipts capital gains represent beyond the cited ~16% share of personal income tax liability through 2022 or granular taxpayer cohorts; those precise, current‑year percentages are not in the provided reporting ^[3].

7. Bottom line for readers and policymakers

Capital gains are both a substantial and unstable revenue source for California: they are taxed at ordinary state rates (up to 13.3% at very high incomes) and historically comprised a sizable portion of personal income tax liability (about 16% average over a recent decade), while budget documents show multi‑billion‑dollar capital‑gains‑related transfers and projected shifts in realizations’ share of personal income ^{[1] [3] [4]}. Voters and lawmakers should treat gains as valuable but unpredictable — useful for one‑time spending or reserves, risky to rely on for permanent programs ^{[3] [4]}.