What steps must I take to properly report the sale of my primary home on my California tax return?

To properly report your home sale, you must calculate your capital gain, determine if the gain is excludable under California law, and report the transaction and any tax withheld on your California Form 540 tax return. Here are the steps to properly report the sale of your primary home: Step 1: Calculate Your Capital Gain First, calculate the gain from the sale. You will need your final closing statement and records of your home's purchase and improvements. The basic formula is: Final Sales Price - (Selling Expenses + Adjusted Cost Basis) = Total Gain. Your adjusted cost basis is the original purchase price plus the cost of any major capital improvements you made. Step 2: Determine if Your Gain is Excludable California conforms to the federal tax exclusion for the sale of a primary residence. You can exclude up to $250,000 of gain if you are single, or $500,000 if you are married filing jointly. To qualify, you must have owned and lived in the home as your principal residence for at least two of the five years leading up to the sale date. Step 3: Complete Your Federal Tax Return First You must report the sale on your federal tax return, typically using Form 8949 and Schedule D. The information from your federal return will be used for your California return. If your entire gain is excludable, you may not have to report the sale federally unless you received a Form 1099-S. Step 4: Report the Gain on California Schedule D (540) Transfer the capital gain figures from your federal return to the California Schedule D (540). This form attaches to your main California tax return, Form 540. You must file this by the state's tax deadline, usually April 15. Step 5: Report Real Estate Withholding The escrow company likely withheld 3.33% of the total sales price for state taxes, as required by California law. You should have received a Form 593, "Real Estate Withholding Statement," showing this amount. Report the withheld amount as a tax payment on your Form 540 to ensure you get credit for the tax already paid. Important considerations: Keep meticulous records of all capital improvements, as they increase your home's basis and reduce your taxable gain. The Form 593 is critical for claiming your withholding credit, so do not lose it. Note: This guidance applies only to your primary residence. If you ever used your home as a rental property or for business, you may have to account for depreciation recapture, which is taxable and complicates the calculation. The rules for second homes or investment properties are entirely different. This is general information and does not constitute legal advice. For complex situations, such as those involving rental use or inherited property, consult with a qualified California attorney or tax professional.