Updated September 28, 2026
An owner moves to Nevada, establishes residency, waits out whatever period their accountant told them to wait, and lists the LA building for sale a year later — believing they've moved the tax liability along with themselves. They haven't. California taxes gain from the sale of California real property because of where the property is, not where the seller happens to be living on closing day. This is one of the more expensive misunderstandings I see, because it usually involves real cost and real inconvenience — an actual move, a change of driver's license, sometimes a change of primary residence — in service of a plan that doesn't do what the seller thinks it does.
Real property located in California generates California-source income when it's sold, regardless of the seller's state of residence at the time of the sale. This is different from how wage income or many other income types work, where your state of residence generally determines which state taxes it. Real estate follows the property, not the person. Moving to a state with no income tax changes how your future wages, retirement income, or other earnings are taxed. It does not change how gain from an LA apartment building is taxed, because that gain is tied to the property's location, and the property didn't move.
California's real estate withholding requirement already treats non-resident sellers as squarely in scope — that rule exists precisely because California expects to tax the sale of California property owned by people who live elsewhere. If moving out of state eliminated California's claim on the gain, this withholding category for non-residents wouldn't need to exist. Its existence is itself evidence of the underlying rule: the state taxes what happens to property inside its borders.
The mix-up is understandable. Most tax planning advice people hear is about income tax residency generally — where you live determines what a state can tax — and that's broadly true for wages, business income earned where you're physically working, and investment income from securities. Real property is the exception people don't expect, because the intuitive framing is "I don't live there anymore, so they can't tax me," when the more accurate framing is "the building is still there, so they still can."
Moving out of state before a sale can genuinely change how your other income is taxed going forward — your salary, your investment portfolio's gains, your retirement distributions. It does not remove California's claim on gain tied to a California building, no matter how long you've established residency elsewhere before the closing date. This is a general rule with real planning consequences, and the specific mechanics of your situation — timing, whether you have other California-source income, whether a 1031 changes the calculus — deserve a conversation with a CPA or tax attorney who handles multi-state situations, not a generic answer.
A 1031 exchange defers the tax regardless of the seller's state of residence — deferral works the same way whether you live in California or Nevada, because it's a federal mechanism tied to the transaction structure, not the seller's address. If you're weighing whether reinvesting the proceeds changes your tax exposure at all, that question has a specific answer that doesn't turn on where you're living when you sell.
If you're moving out of state primarily to reduce tax on an upcoming apartment building sale, that specific goal won't be achieved by the move alone. If you're moving for other legitimate reasons — retirement, family, cost of living — and the sale happens to follow, understand that the sale's tax treatment is unaffected by the relocation, and plan your net proceeds accordingly rather than assuming a benefit that the sourcing rule doesn't provide.
The building's location, not your mailing address, decides which state taxes the sale. Moving out of California can be the right decision for plenty of reasons, but reducing tax on an already-owned LA apartment building's eventual sale isn't reliably one of them. Get the actual mechanics confirmed by a CPA before making a move that's premised on a tax outcome the sourcing rule doesn't support, and build your net proceeds model the same way described in how to sell an apartment building in Los Angeles — from the after-tax number, not the gross one.
Does establishing residency in another state for a year or more change this?
No. The length of time you've lived elsewhere doesn't change where the property is located, and location is what determines California's claim on the gain from its sale.
Will I still have California withholding taken out at closing if I live in another state?
Yes. Non-resident sellers are explicitly within scope for California's standard real estate withholding at closing, absent an exemption.
Does a 1031 exchange work differently for an out-of-state resident?
No. The exchange mechanics and the deferral it provides work the same regardless of where the seller lives — it's a transaction structure, not a residency benefit.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
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