Sale of home in WA when resident in CA for half year

[rhodion]

We moved permanently to WA from CA in June so we were residents for half of the year. We then sold our 2nd home in WA in about one month later in July. Are we then free from all CA capital gains tax on the sale or do we have to pay 50% of it.

[pk]

@rhodion , assuming that the situation you are describing is as follows :

1.  you and your spouse  ( because "we" in your post  ) were resident of CA  till  06/30/2021 ( ? )  and then moved to WA on 07/01/2021.

2. You took steps to establish your residency in WA  ( closer connection, home, banking, voter reg., driver's license, car reg etc. ).

3.  You had a second home  in WA ( from before ? ) which you now sold.  The capital gain is substantial (?).

4. The question now is -- do you have to include this income in a part year resident CA return.   Generally, absent any other facts and circumstances to the contrary ( to my assumptions above ) and that your purpose in establishing residency in WA was not solely to avoid  paying taxes to CA,  the capital gain is not CA sourced income and therefore not taxable by CA during the non-resident period.

Does that answer your question ?

Is there more I can do for you ?

[NCperson · Accepted solution]

@rhodion -  you didn't ask about federal, but unless the WA home was your primary residence for 2 of the past 5 years, it is subject to federal capital gains taxes.

[TomD8]

[edited] If you were a Cailfornia resident when you received the proceeds of the sale, the entire amount is taxable by California.  CA residents are taxed on all income, regardless of its source.

https://www.ftb.ca.gov/forms/2021/2021-1031-publication.pdf

If you were a Washington resident when you received the proceeds of the sale, your capital gain is not subject to California tax.  Nor would you have any tax due to Washington, since Washington does not tax capital gains from the sale of real estate.

[rhodion]

Understood. The WA home was never our primary residence and I am prepared (but not happy) to pay the Federal capital gains tax. The question is whether I have to pay any CA STATE capital gains tax if I sold the WA house after becoming a permanent WA resident for half a year. So do I have to pay 0, 50 or 100% of the CA tax?

[rhodion]

Understood. I was NOT a CA resident at the time of the sale of the WA property, but I was a CA resident for the first half of the year (approximately). So, do I have to pay any CA tax on the capital gains from that sale?

[rhodion]

1. My wife and I were residents of CA until June 5 2021 when we move permanently to WA.

2. Yes we planned the move for a long time, changed our address, could not change DL until we were physically present in WA but we preapplied, we have friends and close family in WA, changed address with our bank etc.

3. Yes, we had a 2nd home in WA which was rented for a while. We thought we might live in it but decided to buy a new house instead and sell the old one.

4. So, no this was not a ploy to avoid CA tax. We have been here in WA ever since, moved our stuff in stages from CA and eventually sold our home in CA. You said that the gain is "not taxable in CA during the non resident period" Please clarify: not taxable by CA just for the non resident period? or not taxable at all since the sale took place while we were WA residents even though it was only for about 2 months? Thanks!

[pk · Accepted solution]

@rhodion ,  based on your reply and while acknowledging the  other valid points raised by @TomD8 , @NCperson :

(a) assuming that the sale of the WA income property was completed/ closed after 06/05/2021 ( your date of move out of CA  with intent to be a resident of WA forthwith), the income associated with the sale of this property  is not taxable  to CA  because you became a Non-Resident of CA on 06/05/2021.

(b) the fact that you sold your CA main residence/main-home  after abandoning CA residency  is not material in defining residency  ---- the main home was in CA and as such  any gains from this would be taxable to CA  without regard to residency.

(c) since your WA property was a rental property , you probably have been  recognizing  the rental income  as out of state income  for CA tax purposes.  Thus  any rental income for the period  Jan 1st through date of abandonment of CA residency is  taxable in CA ( since you were a resident till that date ). 

Does this make sense ?

pk

[rhodion]

a) yes the WA house was sold on 7/22/2021, almost 2 months after we became permanent WA residents.  If I understand correctly, income earned from jobs, pensions, social security and thing that are paid out month by month will be taxed in proportion to the time of residence in one state or the other. The sale of the house, however, took place as a single event on a day after our transition to WA, so that is not taxable in CA at all. Am I thinking about this the right way? So far so good.

b) to bad about the taxes on the CA house (in 2022) That is going to be brutal. We owned that house for 40 years.

c) It was rented until the middle of 2020 and vacant from then until the time of sale.

Thank you for the detailed and informative answer.