For many Silicon Valley retirees, part of the appeal of moving near their children in Nevada, Texas, Idaho, or Arizona is leaving California’s income tax behind. That can be a real and lasting benefit. But California does not let go all at once. It still taxes the gain on the sale of your California home, it scrutinizes whether you have actually left, and the new state brings its own taxes, including property taxes that can be higher than what you pay here under Prop 13. This article covers what I tell clients before they list, and it is part of my guide to moving from Silicon Valley to be near family. It is general information, so work with a CPA on your specific situation.
Key Takeaways
- California generally taxes gain on the sale of California real estate even if you have become a resident of another state before the sale.
- The federal home sale exclusion of $250,000 or $500,000 still applies if you qualify, and California follows it.
- Escrow may withhold 3 1/3 percent of the sale price for California unless an exemption applies, such as the sale of your principal residence.
- Federal law prevents California from taxing most retirement income, such as pensions and IRA distributions, of people who are no longer California residents.
- Several states have no income tax, but property taxes, sales taxes, and insurance costs in the new state can offset some of the savings.
The Sale of Your California Home
Gain from selling California real estate is California-source income. If you sell after you have moved to Nevada, California still taxes the part of the gain that is not excluded. The federal home sale exclusion generally applies if you owned and lived in the home for two of the five years before the sale, and California follows it. For a couple with a large gain on a long-held home, that means the California share of tax does not disappear by moving first. See my worked example in how much capital gains tax you will pay.
At closing, California generally requires escrow to withhold 3 1/3 percent of the sale price unless the seller certifies an exemption on Form 593. The sale of a principal residence that qualifies under the home sale exclusion is one common exemption. If the withholding does happen, it is a prepayment, not an extra tax, and it is reconciled on the California return.
Want to Sell For the Highest Price Possible?
Retirement Income After You Move
Under federal law, states generally cannot tax the retirement income of people who are not residents, including most pensions and distributions from IRAs and 401(k) plans. Once you are genuinely a resident of another state, those distributions are taxed by your new state, if at all. That is a meaningful benefit for retirees moving to states without an income tax. Timing large IRA withdrawals or Roth conversions for after the move is something to discuss with your CPA.
Proving You Have Left
California looks at the whole picture to decide residency: where you live most of the year, where your home is, your driver’s license, voter registration, car registration, doctors, bank accounts, and where your family and community ties are. Keeping your California house as a second home or spending much of the year here can create questions, especially for higher-income taxpayers. The cleaner the break, the fewer questions. Update your license, registration, voter registration, and estate planning documents in your new state promptly, and keep records of the move.
For Best Results
[SEB: ADD REAL CASE STORY BEFORE PUBLISHING] A Silicon Valley client who moved out of state to be near family. Include whether they sold before or after moving, how the CPA handled the California tax on the sale and withholding, and how their overall tax picture changed.
The New State’s Taxes
| Tax | What to check |
|---|---|
| Income tax | Several states have no broad income tax, including Nevada, Texas, Florida, Washington, Tennessee, South Dakota, Wyoming, and Alaska. Others, such as Idaho and Arizona, have flat or lower rates than California. Some tax Social Security and some do not. |
| Property tax | Rates and caps vary widely. Some states have higher effective property tax rates than California and no Prop 13-style cap, so a smaller home can still carry a larger tax bill. |
| Homeowner and senior exemptions | Many states offer homestead exemptions or senior freezes, but you usually have to apply. |
| Sales tax | States without income tax often rely more on sales taxes. |
| Homeowners insurance | Costs can be significant in areas with wildfire, hail, or hurricane exposure. |
| Estate or inheritance tax | A few states have their own estate or inheritance taxes, unlike California. |
Timing is Everything in Life
Buy First or Sell First?
For taxes, the order matters less than people think, because California taxes the home sale either way. For quality of life, buying the new home first and moving once is usually easier, and it lets me sell your Silicon Valley home vacant and staged. See how to buy before you sell. Either way, bring your CPA in before you list. For the full moving picture, see my guide to moving from Silicon Valley to be near family.
Sell As-Is. Sell Easy. Sell Smart!
Frequently Asked Questions
Do I pay California tax if I sell my California home after moving out of state?
Generally yes. Gain on California real estate is California-source income, although the home sale exclusion may still apply.
Will escrow withhold California tax when I sell?
California generally requires 3 1/3 percent withholding unless an exemption applies, such as the sale of a qualifying principal residence. Withholding is credited on your California return.
Can California tax my pension after I move?
Generally no. Federal law prevents states from taxing most retirement income of nonresidents, including pensions and IRA distributions.
Which states have no income tax?
Nevada, Texas, Florida, Washington, Tennessee, South Dakota, Wyoming, and Alaska have no broad personal income tax, though other taxes vary.
How do I prove I am no longer a California resident?
Establish your home in the new state and update your driver’s license, vehicle and voter registration, banking, doctors, and estate documents. California looks at the full picture of your ties.
This article is educational and reflects real estate practice in Santa Clara County. It is not legal or tax advice. Laws, dollar thresholds, and local court practices change, so confirm the specifics of your situation with a California estate attorney and a CPA before you act.
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