Selling Property In San Diego? What The Tax Bill Looks Like Before You Sign

San Diego's transfer tax is straightforward

San Diego County applies the standard California documentary transfer tax of $1.10 per $1,000 of sale price, and no San Diego city currently layers on an additional mansion-style transfer tax the way Los Angeles does with Measure ULA. On a $2,000,000 La Jolla condo sale, that's roughly $2,200: the smallest line item on the whole closing statement. The real cost is upstream, in the income-tax stack.

The federal-plus-state stack that actually hurts

Every San Diego seller faces the same layers as the rest of California: federal long-term capital gains at 0%, 15%, or 20%; the 3.8% Net Investment Income Tax above $200,000 (single) / $250,000 (married) modified adjusted gross income; and California's tax, which has no capital gains discount at all.

Gains are taxed as ordinary income up to 13.3% at the top bracket. Add depreciation recapture at a flat 25% federal rate if the property was a rental, and a large one-year gain can face a painful combined rate.

A worked example: North County appreciation

A retired couple who bought a Carlsbad or Encinitas home in the late 1990s for $400,000 and sells today for $2,200,000 is sitting on an $1,800,000 gain. Taken all at once: roughly $360,000 federal LTCG at 20%, roughly $68,400 NIIT, and California tax that could reasonably run $200,000+ depending on other income.

That combined bite can realistically hit 35%+ of the gain in the year of sale, on top of any depreciation recapture if it was ever rented out.

Why San Diego sellers often reach for a 1031 (and where that binds)

San Diego's replacement-property market is competitive, especially coastal inventory from La Jolla down through Coronado. The 1031 exchange's 45-day identification window can force sellers into rushed, less-ideal replacement purchases just to hit the deadline, and the 180-day close window adds more pressure on top.

Sellers who'd rather retire on the proceeds than keep managing property often find the exchange solves the tax problem by creating a new management problem. See why the 1031 clock is the real problem, not the tax deferral itself.

What if only one spouse wants to sell and retire?

A common San Diego scenario: a couple owns several rental properties bought over 20-30 years, and one spouse is ready to fully retire while the other wants to keep some real estate exposure. Selling everything into a single 1031 exchange forces both into the same replacement-property decision.

Structuring one or two properties individually with a structured installment sale lets one spouse convert their share of the gain into a predictable income stream while the other keeps managing what remains, without forcing a joint decision neither fully wants.

Spreading the San Diego gain instead

Take that same $1,800,000 gain and structure it over 10 years instead (roughly $180,000 of recognized gain a year), and much of it stays inside the 0%/15% federal brackets instead of hitting 20% plus NIIT plus California's top rate all in one return.

The buyer still closes with 100% cash; the seller's payment obligation is assigned to a licensed third party funding a fixed annuity from a highly rated life insurer (A or better by A.M. Best or equivalent), with no requirement to buy replacement real estate.

See what a Structured Installment Sale is, in plain terms, or run your own numbers.

Frequently asked questions

Does San Diego have any city-level real estate transfer tax beyond the county rate?

No San Diego city currently has an additional mansion-style transfer tax; the standard $1.10 per $1,000 county documentary transfer tax applies to most sales.

How is a rental property's depreciation taxed when I sell in San Diego?

Unrecaptured §1250 gain from depreciation is taxed at up to 25% federal. In an installment sale it is spread with the payments, but it comes out first, so the early payments carry it. Only §1245 recapture on equipment and appliances is taxed in full in the year of sale.

What's a realistic tax rate on a large San Diego property gain?

Depending on income and whether recapture applies, a combined federal-plus-California rate of 35% or more on a large gain recognized in a single year isn't unusual. This is illustrative only, not a specific projection for your return.

Do I have to buy another property to defer the tax?

Only with a 1031 exchange. A Structured Installment Sale defers by spreading recognition over a chosen schedule, with no requirement to reinvest in real estate.

Is this only useful for coastal properties?

No. It applies to any San Diego County property or business sale with a substantial gain, coastal or inland, rental or owner-occupied investment property.