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California Real Estate Tax Questions
  • December 14, 2021
  • Sue
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California real estate tax questions often revolve around property taxes, but with the increase in people working remotely and moving out of state, there are a lot of residency questions people have.

We’re going to discuss residency questions, what it means to be considered a resident and how taxes work if you work remotely for a California-based company.

Plus, we’ll be covering so much more.

7 Real Estate Tax Questions Answered

California’s tax rates may have you paying between 1% and 12.3% in state income tax annually. While paying your taxes is important, you don’t want to overpay. The following list of questions is some that clients have asked us that we would like to share with you.

1. Who is considered a resident of California and who isn’t?

Are you a California resident or not? Sometimes, the answer isn’t simple. Luckily, California outlines who a resident is and who isn’t.

  • You’re a resident if you are:
    • In California but not for temporary or transitory purposes
    • Living in California even if you’re outside of the state temporarily or for transitory purposes

If you meet the qualifications above, you’re a resident of California. Otherwise, you’re a non-resident.

2. Can an individual be a part-year resident of California?

Yes. Many people live in the state for part of the year. Since you’re a part-time resident, you’ll have more complex taxes than a full-time resident of a single state.

3. How can I start reducing real estate taxes in California?

In terms of the pure real estate tax, if you own a property in California, you’ll be required to pay property taxes on the home, building, or land. However, you can work to start reducing these taxes if you wish.

A few of the ways that you may be able to reduce your tax burden include:

  • Appeal the value. County assessors can make mistakes when determining the value of your home and how much taxes you should pay. For example, if fires ravaged your neighborhood, you can appeal to the county to have your taxes lowered because your property value is down.
  • Claim tax breaks. Tax breaks are available, including on the first $7,000 of the home’s value. Veterans and disabled persons can receive exemptions, and multiple other tax breaks can be claimed, too.

Otherwise, you will have to pay property taxes based on the value set by the county you reside in.

4. How do taxes work if I sell real estate in California?

The sale of real estate is relatively straightforward in terms of the tax code. Since you’re selling a property in California, the source of income will be from California. In essence, you’ll have to pay taxes on the income from the property.

While there are ways to reduce taxable income, California will tax you on income from the sale whether you live inside or outside of the state.

Additionally, if you sold property outside of California and reside in the state, you’re still taxed on the gain of the sale. For example, if you live in San Diego and sell a property you own in Texas, you’ll still pay taxes on the gain of the sale in CA.

However, you won’t pay taxes on the cost of the sale, such as realtor commissions.

Working with a tax professional can:

  • Reduce your overall tax burden from the sale
  • Help you create a tax strategy to pay as little taxes as possible

5. If I move out of California and still work for my California-based company, will I pay California taxes?

Many residents of California are moving out of the state to Nevada yet still working for a company in the state of California.

If you worked part of the year in California as a California resident, you would need to pay taxes for the months that you worked and resided in the state.

Finally, your employer will take taxes out from your paycheck for taxes as a nonresident if you physically travel into the state to conduct work.

However, due to the source rule, you won’t pay taxes if your work occurs 100% remotely and from outside of the state. The rule is such that income is taxed from where the actual work is performed rather than the location of the business.

For example, if you move to Nevada and conduct all of your work from Nevada, you won’t have to pay CA taxes.

6. If I live in California, but I work remotely from home in California for a company in Nevada, will I still pay CA taxes?

Yes. Due to your residency and earning income while residing in California, you’ll have to pay income taxes on the money earned, even when working remotely. The source of your income, in this case, is California.

7. If I live in California temporarily, do I need to pay taxes?

Possibly. If you visit California or even stay in the state for a month or two, you won’t have to pay taxes unless you derive income from within the state. For example, if you:

  • Stay at a friend’s house in January
  • You work for a brief period and earn $1,000
  • You use the $1,000 to go back home in February

Under this example, you worked in the state, earned $1,000, and must pay taxes on this income even if you were only in the state temporarily.

In recent years, residency issues and paying taxes in California have been a hot topic, especially with people relocating to states with no income taxes to save money. If you have concerns that you’re paying too much or too little taxes, it’s crucial to sit down and speak to a tax professional.

You never want to miss paying taxes – the government will come knocking.

However, you also never want to pay more taxes than necessary either. We hope that the answers above cleared up a few of the questions you may have had.

Did we miss one of your California real estate tax questions? Don’t worry! We’re here to help.

Click here to book an appointment with us to have your questions answered.

Levy | Lauter LLP - Tax and Accounting Firm in Los Angeles, CA

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