On this page
  1. Where the 35 cents come from
  2. What changed in 2025, and what did not
  3. Why this site keeps using the California top bracket
  4. Sources

Three numbers sit under everything else in this topic. For an investor in California’s top bracket, a dollar of gain held more than a year loses 35 cents to tax. The same dollar, sold inside a year, loses 52. The gap between them, 17 cents, is the biggest tax difference an investor controls, and unlike a return it is written down before the year starts.

52¢ Tax on a dollar of gain sold within a year of buying.
35¢ Tax on the same dollar held more than a year, or on a qualified dividend.
17¢ The difference. Nothing else an investor controls moves the rate this much.

Where the 35 cents come from

Three layers stack on top of each other. Federal long-term capital gains tax at the top rate is 20%. The net investment income tax adds 3.8% for high earners. California adds its own 11.3% bracket for a joint filer with taxable income around $900,000, and California does not give long-term gains a lower rate. It taxes them like wages.

20 + 3.8 + 11.3 = 35.1%.

A short-term gain swaps the 20% federal rate for the 37% ordinary rate and keeps the other two layers: 37 + 3.8 + 11.3 = 52.1%. The whole 17-point gap is federal. California charges the same either way.

Six horizontal bars, cents of tax on each dollar of gain. Top bracket, California: 52.1 cents sold inside a year (37 federal, 3.8 investment tax, 11.3 state), 35.1 sold after a year, 0 never sold. 24% bracket, no state income tax: 24, 15 and 0. The investment tax and the state rate are the same on both sides of the one-year line; only the federal rate moves.
Where each dollar of gain goes: federal, the 3.8% investment tax (only above $250,000 of joint income, so the second investor pays none), and state, with the kept remainder in gray. Never sold: held to the step-up at death, or given to charity. 2026 federal schedule plus the 2025 California schedule.

What changed in 2025, and what did not

The 2025 tax act made the 2017 brackets permanent, so the 37% top rate stays. It left the 0, 15 and 20% long-term rates alone, and the 3.8% investment tax alone. Two changes do bite high earners. The state-and-local deduction cap of $40,400 shrinks to $10,000 between $505,000 and about $606,000 of income. And itemized deductions in the 37% bracket lose 2/37 of their value, so a charitable dollar is now worth 35 cents of tax rather than 37.

Why this site keeps using the California top bracket

Because it makes every lever the largest and easiest to see. At lower incomes or in a no-tax state the numbers shrink and the ranking stays the same. An investor with $240,000 of income in Texas faces 24% and 15%, a 9-point gap instead of 17, and the same decisions apply at a smaller scale.