CA state tax on capital gains from sale of treasuries

Sure thing! Let's break down your situation and clarify some points about capital gains, interest, and California state taxes.

1. When you sell a Treasury note at a premium (above face value), the difference between the sale price and the original purchase price will be considered a capital gain. The 4.5% interest you receive on the note is treated separately as interest income. So, the entire amount (0.86% * face value) would indeed be treated as capital gains.
2. As for California state taxes, it's important to note that California does tax capital gains. However, the state treats capital gains as ordinary income, meaning they're subject to the same tax rates as your regular income. You can find more information on California's treatment of capital gains here:
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3. Using the capital gain from the sale of your Treasury note to offset capital loss carryovers can be a smart move. This could help you reduce your overall tax liability. Just be sure to properly report the capital gain on your federal and state tax returns.
4. While it might seem a bit complicated, you're not necessarily getting yourself into a mess by offsetting capital losses with gains from the sale of your Treasury note. It's always a good idea to consult with a tax professional or financial advisor to ensure you're making the best decisions for your specific situation.

In summary, the entire amount (0.86% * face value) would be treated as capital gains, and California does tax capital gains as ordinary income. Offsetting capital losses with gains from the sale of your Treasury note could be a smart move, but be sure to consult with a professional to make the best decisions for your situation.

Are you planning to sell it now, or wait and let it mature?

Unless you sell it on the day they pay interest, some part of the sale price is the interest acccrued but not yet paid.

My broker offers me 10 of those notes for $10,103 principal plus $145.88 accrued interest, total $10,248.88.

The interest is exempt from state taxes but capitals gains and losses are not.

Since they're so close to maturity it seems like a lot of hassle for modest benefit. If you hold on and let them mature, all of the interest is CA exempt and if you bought them at par, there'll be no gain.

Thanks. 2-year yields back up sharply today making the transaction pointless, but I appreciate the response and am now prepared to act if such an opportunity were to arise again.