Thank you Diane. Very helpful. And for others in similar scenario, CA tax bracket for non residents are based on your total income including non CA sources. So tax bracket isn't just based on CA income source.
Actually haven't sold the property and just evaluating tax efficiency. I do have even more detailed question below on alternative solutions.
I'm 73 years old and a very tax efficient solution is to continue renting the property and inherit to my kids at my passing. The 3 major advantages are
- Step-up basis to FMV at my passing
- All depreciation on this property prior to my passing is erased
- Property tax avoid reassessment to market value (in case my kids want to continue to own the property)
An alternative solution is 1031 exchange to WA rental property (closer to my residence, easier to manage rental). But its more complicated and I have a question on CA clawback and inheritance.
- CA will clawback gains when the 1031 exchange to out of state property cashes out. Amount of the gain is at the time of original CA property sale.
What if this 1031 exchanged property in WA (again, no state income tax) was passed through inheritance? Is CA clawback still required? I realize need to deal with WA/Fed estate tax exemption limits.
Thank you for any insight in advance.
