California vs. Texas: How Residency Changes Your Capital Gains Bill
A before-and-after comparison showing how moving from California to Texas alters the tax on a $750,000 real estate gain.
Reviewed by Jamal Lewis, EA
Sources
- California Franchise Tax Board
- Texas Comptroller of Public Accounts
The starting point
Chris and Jordan are selling a rental in San Diego for $1.25 million. After adjusting for improvements and depreciation their net gain lands at $750,000. They plan to move to Austin immediately after closing.
Using the real estate calculator with California residency, the state tax adds roughly $100,000 to their bill. Capital gains, depreciation recapture, and the 1% mental health surtax all apply.
What happens if they move first?
When we change the scenario planner’s state dropdown to Texas and push the closing date out by 60 days, the state tax drops to zero. Federal tax stays the same, but the couple saves six figures by establishing Texas residency before closing. The carrying costs of an extra two months of ownership are minimal in comparison.
Checklist before relocating
- Update driver’s licences, voter registration, vehicles, and bank accounts to the new state.
- Spend more days in Texas than California for the current calendar year.
- Document the closing statement and proof of residency in case California challenges the move.
Beyond California and Texas
Washington’s 7% excise tax on long-term capital gains exempts up to $750,000 of gains on primary residences. Massachusetts now applies its 4% surtax to combined income above $1 million. Plugging these into the calculator helps you decide whether a relocation or partial-year residency split is worth the effort.