Selling your LA home and moving out of state: what to know
Timing the sale and the move, California withholding at closing, capital gains basics, transfer taxes and other questions to raise with your CPA.
In this guide: Timing · Capital gains basics · California and the sale after you move · Withholding at closing · Transfer taxes · Prop 19 · Questions for your CPA
Timing the sale and the move
The first big decision is order of operations. People generally choose between three approaches:
- Sell first, then buy. You know exactly what you have to spend and aren't carrying two homes. The trade-off is you may need temporary housing.
- Buy first, then sell. You move once, but you may carry two mortgages for a while or need a bridge loan, which some lenders offer against the equity in your LA home.
- Sell with a rent-back. You close on the LA sale and rent the home back from the buyer for a set period, giving you time to buy and move. Terms are negotiated as part of the sale.
Which one fits depends on your equity, financing, and how firm your destination plans are. A lender can tell you what's realistic on the financing side.
Capital gains basics on a primary residence
Under federal law (IRC Section 121), many homeowners can exclude up to $250,000 of gain on the sale of their main home, or up to $500,000 for married couples filing jointly, if they meet ownership and use tests (generally, owning the home and living in it as a main home for at least 2 of the 5 years before the sale). California generally follows the federal exclusion. Long-time LA owners can have gains well above these amounts, which is one reason to get tax help before listing.
A married couple bought in 2005 for $600,000 and spent $150,000 on improvements, for an adjusted basis of about $750,000. Ignoring selling costs for simplicity, if they sold for $1,900,000 their gain would be roughly $1,150,000. If they met the tests for the full $500,000 exclusion, about $650,000 of gain could still be taxable at the federal and state level. This is a simplified illustration: basis, improvements, depreciation (for example, from a past home office or rental use), filing status and many other factors change the result. The IRS Publication 523 covers the rules in detail.
California and the sale after you move
A common surprise: moving out of California generally does not take a California home sale out of California's reach. Gain from selling real property located in California is generally treated as California-source income, which California can tax even if the seller is no longer a resident. Separately, the year you move usually involves part-year resident returns, and California's Franchise Tax Board looks at many factors to decide when someone actually stopped being a resident. The FTB's Publication 1031 explains how residency is determined.
California withholding at closing
California generally requires that 3⅓% of the sales price be withheld at closing and sent to the Franchise Tax Board on sales of California real estate, unless an exemption applies. Escrow handles the paperwork using Form 593. Many sellers qualify for an exemption, for example when the home qualifies as their principal residence under Section 121, or when the sale results in a loss. There is also an option to have withholding calculated on the estimated gain instead of the full price. Withholding is a prepayment that's credited on the seller's California return, not an additional tax.
On a $1,500,000 sale with no exemption and the standard calculation, 3⅓% would be $50,000 withheld at closing. Whether any withholding applies, and how much, depends on the seller's situation, which is why sellers review Form 593 with their escrow officer and CPA well before closing.
Transfer taxes in Los Angeles
Documentary transfer taxes are charged when property changes hands. Los Angeles County charges $1.10 per $1,000 of value. Several cities add their own tax on top, including the City of Los Angeles. Who pays is a matter of local custom and negotiation.
The City of Los Angeles also has Measure ULA, an additional transfer tax on higher-priced sales. For fiscal year 2025-26, it applied at 4% to sales above $5.3 million and 5.5% to sales of $10.6 million and above. The thresholds adjust every July 1, so check the current figures with the LA Office of Finance. Measure ULA applies only to properties within the City of LA, not to separate cities such as Beverly Hills, Santa Monica or Burbank.
Prop 19 does not follow you out of state
Prop 19 lets eligible California homeowners (such as those 55 and older, severely disabled homeowners, or victims of certain disasters) transfer their property tax base to a replacement home. That benefit applies to replacement homes within California only. If you're leaving the state, your new home's property tax will be set by the rules where you're moving. See the Board of Equalization's Prop 19 page.
Questions people commonly bring to their CPA
- Do we qualify for the full Section 121 exclusion, and what is our adjusted basis?
- What's the most tax-efficient year to sell relative to our move date?
- Do we qualify for a Form 593 withholding exemption?
- How do part-year resident returns work for the year we move?
- Would keeping the LA home as a rental change any of this? (See keep or sell.)