Luxury Sellers’ Guide: Capital Gains & Tax Planning for $10M+ Home Sales in Los Angeles
Los Angeles is home to some of the most valuable real estate in the world, with properties frequently trading for $10 million and above. Whether you’re selling a grand estate in Bel Air, an architectural masterpiece in Hollywood Hills, or a coastal villa in Malibu, one thing is certain—capital gains taxes will play a major role in your net proceeds.
As a high-net-worth individual navigating an ultra-luxury transaction, your ability to properly plan for taxes could mean retaining millions more from your sale.
Capital Gains Tax Overview for LA’s Luxury Market
For properties exceeding $10 million, capital gains taxes in California can easily top 35% when combining federal, state, and other levies.
- Federal capital gains tax (long-term): Up to 20%.
- California state capital gains tax: Up to 13.3%.
- NIIT (Net Investment Income Tax): Additional 3.8% for high earners.
Example: A seller listing a $12 million home in Encino that they originally purchased for $5 million could be staring at a $7 million taxable gain, potentially resulting in $2.5 million or more in capital gains taxes if no mitigation steps are taken.
Top Capital Gains Reduction & Deferral Strategies
1. Primary Residence Exclusion
If you’ve occupied the home as your primary residence for at least two out of the past five years, you may be eligible to exclude:
- $500,000 (married couples filing jointly).
- $250,000 (single homeowners).
While relatively small for luxury sellers, this exclusion can be combined with other strategies for maximum benefit.
Tip: Many long-term homeowners in areas like Los Feliz or Studio City may qualify.
Learn more about Los Feliz luxury living here.
2. The 1031 Exchange Advantage
If your property has been used as a rental or investment property, a 1031 Exchange is one of the most powerful tools to defer capital gains taxes by reinvesting into another like-kind property.
- Example: Selling a $10M+ income property in Sunset Plaza and reinvesting into a larger income-producing asset in Santa Monica.
⚠️ Note: A 1031 Exchange follows strict IRS deadlines and applies to investment properties, not primary residences.
Learn about high-end rental markets in Santa Monica.
3. Converting a Primary Residence into a Rental
Some luxury homeowners convert their primary residence into a rental for at least two years to qualify for a 1031 Exchange. This allows sellers to legally reposition equity into new investment properties and defer taxes.
⚠️ Disclaimer: Converting a home into a rental requires careful planning. Always work with a CPA or real estate attorney.
4. Charitable Remainder Trust (CRT) for Estate Planning
A Charitable Remainder Trust is a tax-efficient way to:
- Avoid immediate capital gains taxation.
- Create a lifetime income stream.
- Receive charitable contribution deductions.
High-end sellers use CRTs to achieve both wealth preservation and philanthropic goals.
⚠️ Important: CRTs are complex legal instruments that must be drafted by qualified estate planners.
5. Opportunity Zone Investments
Sellers can defer or reduce capital gains taxes by reinvesting sale proceeds into Qualified Opportunity Zone Funds, which are designed to promote economic development in specific areas.
This strategy isn’t suitable for everyone but can be valuable for long-term investors.
IRS Opportunity Zone overview: https://www.irs.gov/credits-deductions/businesses/opportunity-zones
Special LA-Specific Considerations
- High state taxes: Luxury homeowners in California face some of the highest capital gains taxes in the U.S.
- Nonresident sellers: Out-of-state or international owners may encounter additional withholding or reporting requirements (e.g., FIRPTA).
- Luxury appreciation: Neighborhoods like Beverly Hills and Malibu have seen rapid property appreciation, further elevating potential gains.
Explore our Beverly Hills luxury market insights.
Case Study Example
An owner sells a $10 million modern estate in Hollywood Hills East, which they held as their primary residence for 5 years:
- They claim the primary residence exclusion.
- Convert the home into a rental property.
- Complete a 1031 Exchange into a $12 million income property in Bel Air.
- Layer additional estate planning through a CRT.
Result: Deferred or reduced tax liability, charitable giving benefits, and future rental income.
See more about Bel Air’s investment appeal here: Bel Air Luxury Properties.
Work With the Right Experts
Luxury home sales demand a sophisticated team. Your advisory team should include:
- A real estate-specialized CPA.
- A tax attorney experienced with UHNW clients.
- A wealth advisor to integrate real estate into broader portfolio planning.
Final Thoughts
Selling a $10 million+ property in Los Angeles is a high-stakes transaction. By proactively incorporating tax strategies like 1031 Exchanges, CRTs, and rental conversions, you can significantly reduce your capital gains exposure and protect more of your wealth.
Disclaimer
I am not a CPA or attorney. This article is for informational purposes only and does not constitute legal, financial, or tax advice. I do not assist with creating trusts, managing 1031 Exchanges, or converting properties into rentals. Always seek advice from qualified professionals before making tax-related decisions.
