How Berkeley Home Sales Affect Property Taxes and Capital Gains

Selling a home in Berkeley can change both your property tax bill and your tax picture at sale. If you have owned your home for years, Prop 13 likely kept your assessed value low, which makes the math feel confusing when you sell or buy. In this guide, you will learn how reassessment works in Berkeley, what capital gains rules apply, and the key steps to take so there are no surprises. Let’s dive in.

Property taxes after a Berkeley sale

Prop 13 basics

California’s Prop 13 set a 1 percent base property tax rate and limits annual increases in assessed value to a maximum of 2 percent unless there is a change of ownership or new construction. In Berkeley, local voter‑approved charges like parcel taxes and bonds are added to that 1 percent base. That is why the effective rate on your bill is often higher than 1 percent. You can review Prop 13’s framework in the State Board of Equalization’s overview of property tax rules and limits (BOE guide).

Reassessment and supplemental bills

A sale is a change of ownership, so the buyer’s assessed value usually resets to the purchase price on the date of closing. California also issues one or more supplemental tax bills that prorate the difference between the old and new assessed values for the remainder of the fiscal year. Counties explain that you must pay supplemental bills even if they arrive months after closing (supplemental bill FAQ). For the seller, taxes are prorated through escrow; you are not billed for the buyer’s reassessment. For the buyer, expect a higher annual bill going forward based on the new assessed value.

Local parcel taxes in Berkeley

Berkeley adds voter‑approved parcel taxes to fund local services. For example, the Berkeley Unified School District’s BSEP measure describes how its parcel tax is applied and used (BSEP parcel tax FAQ). When you estimate your post‑sale taxes, include these local charges in addition to the 1 percent base rate.

Homeowners’ exemption for buyers

If you will live in the home as your principal residence, apply for the homeowners’ exemption after closing. In most counties this reduces your taxable value by $7,000 when approved. County assessor pages outline eligibility and filing steps; see a general overview of property tax and exemptions here (homeowners’ exemption info).

Capital gains when you sell

Home sale exclusion (Section 121)

If the Berkeley home is your main home and you owned and lived in it for at least 2 of the last 5 years, you may exclude up to $250,000 of gain if single, or up to $500,000 if married filing jointly. Depreciation claimed for rental or business use is not excludable, and some special situations may allow a partial exclusion. See worksheets and rules in IRS Publication 523 (IRS Pub 523).

California taxes gains as ordinary income

California does not have a special lower capital gains rate. The state taxes capital gains at your regular income tax rates, which can make the state tax on a large gain feel higher than expected (FTB guidance on capital gains).

Basis, improvements, and depreciation

Your taxable gain equals the sales price minus selling costs and your adjusted basis. Adjusted basis is usually what you paid plus capital improvements, minus any depreciation claimed. If you claimed depreciation for rental or business use, that portion of the gain is generally taxed and cannot be excluded under Section 121. IRS Publication 523 explains how to calculate this and how depreciation recapture works (IRS Pub 523).

Net Investment Income Tax for high earners

A 3.8 percent Net Investment Income Tax can apply to capital gains when your income exceeds federal thresholds. Review the thresholds and calculation in the IRS instructions for Form 8960 (NIIT instructions).

Investment property and 1031 exchanges

If the property is strictly an investment or business property, you may be able to defer gains through a 1031 exchange. Primary residences do not qualify. California generally follows federal 1031 rules but has specific state filing requirements (FTB 3840 instructions). For details on federal like‑kind exchanges, see IRS guidance in Publication 544 (IRS Pub 544).

Inherited Berkeley homes: step‑up vs reassessment

Step‑up in basis at death

When a home passes at death, heirs generally receive a step‑up in basis to the property’s fair market value on the date of death. That can reduce or eliminate capital gains if the heir sells soon after inheriting. See basis rules in IRS Publication 559 (IRS Pub 559).

Prop 19 effects on parent‑to‑child transfers

Since 2021, Prop 19 narrowed parent‑to‑child reassessment exclusions. A transfer of a family home can avoid full reassessment only if the child makes it their primary residence and certain value limits are met. Transfers of second homes or rentals are generally reassessed. Alameda County explains how Prop 19 works and the timing to claim the exclusion (Alameda County Prop 19). In practice, heirs often weigh lower capital gains from the step‑up against the higher ongoing property taxes after reassessment.

Example scenarios

Example 1: Long‑time owner sells

You bought in 2005 for $600,000 and sell in 2025 for $1,500,000. If you made no major capital improvements and did not claim depreciation, your gain is roughly $900,000 before selling costs. If you meet the Section 121 test, you can exclude up to $250,000 if single or up to $500,000 if married filing jointly, and the remainder is taxable. California taxes the taxable portion at ordinary income rates, and the federal NIIT may apply depending on your income (IRS Pub 523).

Example 2: Inherited home

You inherit a Berkeley home and the basis steps up to fair market value at the date of death. If you sell soon after, there may be little or no capital gains tax. If you keep the home and it does not qualify for the Prop 19 primary residence exclusion, the county will likely reassess it to market value, increasing ongoing property taxes (IRS Pub 559; Alameda County Prop 19).

Practical steps for sellers and buyers

If you are selling

• Gather records to calculate adjusted basis, including purchase documents and capital improvement receipts. Use IRS Publication 523 worksheets for estimates (IRS Pub 523).
• Confirm your eligibility for the $250,000 or $500,000 exclusion and consider whether depreciation recapture or NIIT may apply.
• Ask your escrow officer about Form 1099‑S reporting and how property taxes will be prorated.
• Talk with a CPA for a tailored estimate of federal and California taxes.

If you are buying

• Budget for reassessment to the purchase price and one‑time supplemental tax bills that arrive after closing (supplemental bill FAQ).
• Include Berkeley parcel taxes in your annual tax estimate, such as school district measures like BSEP (BSEP parcel tax FAQ).
• If you will occupy the home, file for the homeowners’ exemption promptly (homeowners’ exemption info).
• Review change‑in‑ownership rules to understand timing and appeals (BOE change‑in‑ownership).

Work with a local advisor

The numbers matter, and timing does too. If you want a clear, step‑by‑step plan for selling or buying in Berkeley with eyes wide open on taxes, reach out to Diana Sweet for research‑driven guidance and a personalized strategy.

FAQs

Will my Berkeley property taxes change when I sell?

• Your taxes are prorated through escrow. The buyer is reassessed to the purchase price and may receive supplemental bills for the rest of the fiscal year (supplemental bill FAQ).

How does Prop 13 affect a Berkeley buyer after closing?

• The buyer’s assessed value resets to the purchase price and then generally increases no more than 2 percent per year, plus voter‑approved local charges (BOE overview).

What capital gains exclusion applies to my primary Berkeley home?

• If you owned and lived in the home for 2 of the last 5 years, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly (IRS Pub 523).

Does California tax home sale gains at lower rates?

• No. California taxes capital gains as ordinary income under its regular rate schedule (FTB capital gains).

What happens to an inherited Berkeley home under Prop 19?

• Heirs may get a federal step‑up in basis, but property taxes can be reassessed unless the heir makes the home their primary residence and meets Prop 19 limits (Alameda County Prop 19).