IRA conversion and Home Sale cap gains when moving from WA to CA

[lynnqu]

Hello tax experts and enthusiasts, my parents are planning to move from Washington state (where there is no state income tax) to California sometime in 2022 in order to be closer to their grandson.  They are in their 70s and a significant part of their retirement savings is in IRAs, they also own a home in WA that they plan to sell.

There are two questions around tax impact of moving from WA to CA, for which there does not seem to be a clear answer (i.e. after extensive Googling)

1. Tax hit on Roth conversion: if they convert (deductible) Traditional IRA to Roth IRA in March in WA, and they move to CA in October of the same year, will they have to pay CA state tax for converted traditional IRA?

2. Capital gains tax on selling the WA home: should they wait until the completion of the WA house sale before moving to CA, so that they don't pay CA state tax on the home sale capital gains?

Would love to hear relevant experience and insights, thank you!

[DanielV01]

In the year of their move, California will only tax income earned that is either "California-sourced" (that is, derived from California regardless of where they live), or that is earned after moving and establishing residency in California.  That year your parents will be part-year residents of California, and so California will not tax income that is derived from Washington prior to moving to California.  That means that the Roth conversion prior to their California move is not taxable to California, and the sale of their home (which might not be taxable anyways, if it is the sale of their primary residence for which they've lived in for more than 2 of the last 5 years), is not taxable in California regardless if sold before they officially move there.  These are the rules for a part-year resident of California.  Click here for more information.

[TomD8]

If the house is sold after they become California residents, any (taxable) capital gain is taxable by California.

https://www.calcpa.org/public-resources/ask-a-cpa/tax-tips/capital-gains-losses/must-i-pay-capital-g...