We're Moving to Nevada (or Texas) and Haven't Sold the Palo Alto House We've Lived In for 20 Years. Once We've Moved, Does California Still Take 13.3% When We Sell?

Direct answer

Yes. The house is in California, so the gain is California-source income. Sell after you've moved to Nevada or Texas and you still file California's nonresident return, Form 540NR. On a $4M gain, the California tax runs roughly $417K to $484K, close to what you would owe selling as a California resident.

13.3% is the top marginal rate: the 12.3% top bracket plus a 1% Behavioral Health Services Tax on taxable income above $1M. Spread across a $4M gain, the effective rate comes to about 12.1%. The move date can't change which state this tax belongs to. It changes two things. The first is the Section 121 home-sale exclusion. It requires 2 years of use within the 5 years before the sale, so once you have been gone more than 3 years, a married couple's $500K exclusion disappears: about $66.5K more in California tax, and about $119K more federally. The second is whether anything is withheld at closing. Sell inside the 3-year window and you can claim Line 1 on Form 593, even if the home was rented after you left, and nothing is withheld. After the window, a home that has stood empty since the move can still claim Line 2. A home that was rented qualifies for neither, and escrow withholds 3⅓% of the gross price up front, about $167K on $5M, trued up on the next year's 540NR. Whatever is withheld, it is not the final tax.

This article is written for U.S. citizens and green card holders selling a long-time primary residence as a married couple filing jointly. All dollar figures are illustrative estimates under published rules. It is for decision education and is not legal or tax advice; confirm any action with your attorney and CPA.

Who this article is for

• U.S. citizen and green card households who have lived for years in a Palo Alto or Los Altos home that has gained several million dollars, and who plan to move to a state with no income tax, such as Nevada or Texas. In MK Bay Area Pulse Q3 2026 (MLSListings single-family closings across three counties), Palo Alto recorded 103 sales at a median $4,200,000 and a median 9 days on market; Los Altos recorded 72 sales at a median $4,910,150 and a median 8 days. This article's $5M example sits close to the median in both cities.
• Owners who haven't moved yet and are weighing whether to sell first or move first.
• Owners who have already moved, with the old house sitting empty or rented out, who want to know what another year or two of waiting will cost.
• Sellers whose escrow has just sent over Form 593 and who aren't sure which line to check.

For the reverse move, coming into the Bay Area from another state and sequencing two homes, see moving from Seattle to Palo Alto: which house to sell first, and what each state taxes. If you are leaving the U.S. rather than moving to another state, nonresident-alien tax and withholding on rent follow a different set of rules; see relocating abroad: sell the Bay Area home or keep it as a rental.

The premise: this tax follows the house, not the household

California taxes nonresidents only on California-source income (R&TC §17951), and the source of a gain on real estate is where the property sits. FTB Publication 1031 (2025 edition) puts it plainly in its "Sale of Real Estate" section: "If you sell your California real estate and move out of state, the gain is taxable by California." Sell after you have already become a nonresident, and the gain is still taxed by California. Example 12 in the same publication uses a Nevada resident: living in Nevada, owning a rental in California, selling it at a gain. Because the property is in California, the gain is California-source income.

The way nonresident tax is computed is also why the move doesn't save this money. Form 540NR first assumes you were a California resident all year. It puts all your income together, including wages earned in Nevada, to compute a tax and an average rate, then applies that rate to your California-source taxable income. Under the FTB's 2025 rate schedules, a married couple filing jointly pays 12.3% on taxable income above $1,485,906. Line 72 of the 540NR adds the Behavioral Health Services Tax (renamed in 2025 from the Mental Health Services Tax): another 1% on California taxable income above $1M. Together they make the familiar 13.3%. On a $4M gain, that comes to about $484K, an effective rate of about 12.1%.

What the move does change is income that doesn't arise in California. The same Pub 1031 states that gains on stocks and bonds are sourced to the state where you live when you sell them: publicly traded shares sold after you have moved to Nevada are not taxed by California. (RSU and stock option income allocated by where the work was done follows separate rules, not covered here.) Both are gains. For stock, what counts is where you live; for a house, where the house is. Separately, Prop 13 has kept the property tax on a long-held home anchored to its purchase price, rising at most 2% a year. Income-tax basis is a different matter: it is what you paid plus improvements. On a house bought 20 years ago, a gain in the millions is routine.

Three dimensions: what the move date actually changes

Dimension one: the Section 121 three-year window starts counting down the day you move out

IRC §121 requires that you owned the home for 2 years and lived in it for 2 years within the 5 years before the sale. After 20 years in the house, you clearly meet both on moving day. From then on, each day removes a day of use from the 5-year look-back. More than 3 years out, the look-back holds less than 2 years of use, and the exclusion no longer applies. California follows §121 under R&TC §17152, so the federal and California exclusions are lost together. In this article's example, California tax rises by $500K × 13.3% ≈ $66.5K, and federal tax, roughly at 20% plus the 3.8% NIIT, by about $119K: about $186K in all.

For a couple to claim the full $500K, either spouse can meet the ownership test, but each must meet the use test. Say the husband starts a job in Nevada first and the wife follows a year later with the children. His 3 years run out first. From that day until hers run out, §121(b)(2)(B) computes the exclusion on her alone, and it drops to $250K. Once her 3 years are up too, it goes to zero. The full calculation is in how much tax is owed on the gain above the $500K exclusion.

Dimension two: two Form 593 exemptions, one tied to the 3-year window, one to the home's last use

California's real estate withholding (R&TC §18662) applies to every seller, residents and nonresidents alike (FTB Publication 1016, Revised 02/2026). The default is 3⅓% of the gross sale price (the FTB writes it as .0333): about $167K on $5M. An individual seller can instead elect withholding at 12.3% of the gain estimated in Part VI of Form 593. In this example the gain is 80% of the price, so that method would withhold about $492K, far more than the default. Sellers of long-held homes usually stay with the default.

Whether you can skip withholding depends on two lines in Part III of Form 593. Line 1 covers a principal residence that qualifies under §121, meaning 2 years of use within the last 5, so it expires on the same day as the 3-year window in dimension one. It looks only at the window, not at what the home was used for after you left. Line 2 covers a property last used as the seller's principal residence. The FTB's 2026 instructions say this line applies without regard to the two-year period, but a property last used as a vacation home, second home or rental doesn't qualify. In other words: sell inside the 3-year window and Line 1 applies whether the home sat empty or was rented. After the window, a home left empty since the move can still claim Line 2, and nothing is withheld at closing. Pub 1016 also makes clear that Line 2 applies "for withholding purposes only": the $500K exclusion is already gone, and the whole gain is still reported the next year. If, after the move, the old house serves as a base for trips back to the Bay Area or as a vacation home, its last use may be treated as a second home, and once the window closes, Line 2 is out of reach too.

Don't check an exemption on instinct. Form 593 must be signed and delivered to escrow before closing, under penalty of perjury. Knowingly checking a line you don't qualify for, to avoid withholding, carries a penalty of 20% of the amount that should have been withheld or $1,000, whichever is greater: about $33K on a $5M sale. And if you discover after closing that too much was withheld, the only way to recover it is as a credit on that year's return. There is no early refund.

Dimension three: rent it out after the move, and the clock keeps running while three new costs appear

Renting doesn't pause the window. The §121 look-back runs on the calendar, rental days don't count as use, and when the 3 years are up, the exclusion lapses all the same. For a sale inside the window, the rental period after you move out does not count as "nonqualified use" that would shrink the exclusion (§121(b)(5)(C)(ii)(I)); that much a renting seller keeps. Withholding works the same way. Sell inside the window and a rented home can still claim Line 1 on Form 593, with nothing withheld; Pub 1016 likewise notes that a property that was rented out may still qualify for an exemption.

The three new costs. First, rent is California-source income, so even living in Nevada you file a 540NR every year. Second, depreciation during the rental years reduces your basis. Residential rental property is depreciated straight-line over 27.5 years, on the building only, and the rule is "allowed or allowable": basis comes down whether or not you claimed the depreciation on your returns. That slice of the gain can't be excluded under §121 (§121(d)(6)); federally it is taxed at up to 25%, and California taxes it as ordinary income. Third, once the home's last use is a rental, Line 2 no longer applies. Once the window closes, neither does Line 1, and 3⅓% of the gross price is withheld at closing.

One $5M home, three ways to sell: California tax, withholding and the balance due the next year

The core numbers first. The same home, selling for $5M with a $4M gain, owes about $417K in California tax if sold within 3 years of the move, and about $484K if sold later; the roughly $66.5K difference is the $500K exclusion times 13.3%. Whether anything is withheld at closing depends on timing and last use. A sale inside the window claims Line 1, and a later sale of a home left empty claims Line 2; neither has anything withheld. A home rented after the move and sold more than 3 years out qualifies for neither: about $167K is withheld at closing, and at least about $317K more is due with the next year's 540NR.

Table assumptions: married filing jointly, both U.S. citizens or green card holders, who lived in the home until moving out on the same day; sale price $5M, basis (purchase price, improvements and selling costs combined) $1M; residents of Nevada or Texas in the year of sale, with no taxable income other than this gain. Scenario A means closing before the third anniversary of the move. A home rented inside the window can also claim Line 1 with nothing withheld, but the gain attributable to rental-period depreciation is taxed separately. In practice, schedule closing a few weeks clear of the 3-year line so an escrow delay can't push it across. California income tax uses the FTB's 2025 Schedule Y ($144,439.65 plus 12.3% of the amount over $1,485,906), before deductions and exemption credits, plus the Behavioral Health Services Tax on line 72 of the 540NR. If you have other income that year, the 540NR sets the rate on all of it, and the tax on the house will be slightly higher. Federal tax is a rough 20% long-term capital gains rate plus the 3.8% NIIT, not bracketed. Withholding at the FTB's .0333 comes to $166,500. All amounts are illustrative estimates, not any real transaction or tax bill. Sources: FTB Publication 1031 (2025), Publication 1016 (Revised 02/2026), 2026 Instructions for Form 593, 2025 California tax rate schedules and Form 540NR instructions; IRC §121 and §1411.

What to remember: the lowest California figure in the table is $417K, and moving to Nevada didn't reduce it by a dollar. Had you stayed and sold as a Palo Alto resident, the California tax on the house would be the same number. Where time really is money is the 3-year window: between A and B, California and federal tax together differ by about $186K. The other counterintuitive line is withholding. Scenario B has nothing withheld at closing and then owes about $484K the next year. Scenario C has about $167K withheld, which looks like the tax has been paid but covers only about a third of the California tax due. If nothing is withheld at closing, that is all the more reason to set the tax aside separately. Whether to make quarterly estimated payments turns on two questions: did you have a California tax liability last year, and does this year's California AGI reach $1M? If it does, estimates must be based on the current year's tax, and last year's tax can't serve as a safe harbor (Form 540-ES instructions). Leave that step to a CPA working from the current year's rules.

MK Group in practice: the move date is pressure, not the tax deadline

The time pressure a move creates is well illustrated by a transaction MK Group debriefed in February 2026 (anonymized; the sale price and tax details were not disclosed). A Palo Alto homeowner had been promoted into an out-of-state role and was preparing to move the family away from the Bay Area. The home came to market as the market cooled. After about three weeks it had drawn a single low offer, and with the move pressing, the owner was ready to take it. Signing required review by a third-party relocation company, which held the process up for about 10 days. The team didn't stop because an offer was already in hand. Through the gap it kept marketing the home and matching buyers, and landed a stronger buyer at about $100K above the low offer the owner had been ready to accept.

Set against this article's question, the lesson is that the pressure of a move date is real, but it is not California's tax deadline. Sell first or move first, the California tax on the house is the same. The hard date for tax purposes is the third anniversary of moving out, a long way past moving day. At the pace in Pulse Q3 2026, Palo Alto single-family homes sold in a median 9 days, at a median 107.6% of original list price: inside the 3-year window, there is time to list and negotiate normally. Taking a low offer to close before the move saves not a dollar of California tax.

With the owner out of the Bay Area, a sale can take very few trips back. In July 2026, MK Group, the team led by Marie Wang (DRE# 02110980) and Kevin Mo (DRE# 02127623), sold an older Atherton home off-market for $8M. The sellers had long lived outside the Bay Area (where was not disclosed) and could hardly oversee renovation, staging and showings in person; a conventional listing would have needed at least six weeks of preparation. The team judged that the property's value lay mainly in the land, a lot with three access points, so it retargeted the sale from owner-occupant families to local developers, and the home sold off-market before listing prep began. The sellers flew back only to sign; the team coordinated the rest. Which steps, from signing and notarization to handing over the keys, can be done remotely is covered in selling a Bay Area home from out of state without flying back.

On this article's timeline, that adds up to three things:

• The tax deadline is the third anniversary of moving out, not moving day.
• What the home is used for after the move decides whether anything is withheld at closing. Sold more than 3 years out, an empty home and a rented one get different results on Form 593; sold inside the window, both can claim Line 1.
• Execution can be handed off while you are out of the Bay Area. The tax is yours to work out before closing.

Common mistakes

Mistake one: "Once I've been out of California for 183 days, I'm no longer a Californian, so selling the house owes California nothing"

California has no "gone 183 days, now a nonresident" rule. FTB Pub 1031 determines residency by where your closest connections are: where your spouse and children live, where your principal residence is, where your driver's license and vehicle registration are, where you vote and bank, and more, with no single factor deciding it. Spending more than 9 months of a year in California creates a presumption of residency. More to the point, even as an undisputed Nevada resident, the gain on this house is still California-source income. The "Sale of Real Estate" section of Pub 1031 states that if you are a nonresident when you sell, the gain is still taxed by California, and Example 12 is a Nevada resident selling a California rental, with the gain going to California. Residency decides which state taxes your other income; it doesn't decide this house. One more point: where your principal residence and real property are located is itself on the FTB's list of factors. Keeping the old house unsold, furniture in place, can be used to question whether you had really left in the year you moved.

Mistake two: "Sell then move, or move then sell: one of the two orders has to save California tax"

For this house, the order doesn't change the California tax. Sell while still a resident, and the gain is part of your total income on the resident return. Sell after moving, and the gain goes on the 540NR as California-source income, with the rate set by all your income. Under this article's assumptions, the two come out to the same number. The order affects only two things: whether the sale falls more than 3 years after the move, which decides whether the $500K exclusion survives; and which state taxes your other income after the move, such as stock sold after you leave, which is sourced to where you live when you sell. Selling before moving does spare you from watching the 3-year window or worrying about which Form 593 line to check. The California tax itself is the same.

Mistake three: "What escrow withheld is my California tax, and if nothing was withheld, I don't owe any"

Withholding is a prepayment, not the tax. In Pub 1016's words, real estate withholding is a prepayment of income tax, not an additional tax. The roughly $167K withheld at 3⅓% of the price bears no relation to the roughly $484K of California tax in this example. It is settled on the next year's 540NR: refunded if too much was withheld, topped up if too little. Conversely, checking Line 1 or Line 2 and having nothing withheld at closing doesn't mean there's no tax. The FTB's 2026 Form 593 instructions state that qualifying for an exemption, or having tax withheld, doesn't relieve you of the obligation to file and pay. Scenario B is exactly this: zero withholding at closing, about $484K due the next year. And withheld money comes back only by filing; if you don't file, it stays with the FTB.

Mistake four: "Rent it out after the move, sell in a few years, and the California tax goes away"

It doesn't, and it adds costs. Rent is California-source income every year, so you file a 540NR from Nevada. The 3-year window doesn't pause for a tenancy, and when it closes, the $500K exclusion lapses, adding about $66.5K in California tax and about $119K federally in this example. Depreciation during the rental years reduces basis on an "allowed or allowable" basis, and that part of the gain can't be excluded under §121. And sell after the window with a rental as the last use, and neither Line 1 nor Line 2 on Form 593 applies, so 3⅓% of the gross price is withheld at closing. Renting can be a sound investment decision, provided the rental return justifies those costs. Just don't treat it as a way around the tax.

Next steps

1. Mark the date the exclusion expires. Write down the last day you and your spouse each used the old house as your principal residence, and add 3 years to each. If the dates differ, the earlier one governs if you want the full $500K. Don't schedule closing within a few weeks of that line; leave room for an escrow delay.
2. Decide how the house will be used before you move. If you plan to sell, keep it empty, and don't use it as a base for trips back to the Bay Area. If you plan to rent, build the annual 540NR, depreciation and, if the sale slips past 3 years, 3⅓% withholding at closing into your return calculations.
3. Before listing, have a CPA carry both layers of tax all the way through. Compute the California tax on the 540NR (including the 1% Behavioral Health Services Tax) and the federal tax, then decide whether to claim Line 1 or Line 2 on Form 593 or to withhold on the price or on the gain, and confirm whether quarterly estimated payments are needed.
4. Gather your basis records. The settlement statement from the original purchase, plus invoices and permit records for improvements such as an addition, a new roof or a kitchen remodel. At a 13.3% marginal rate, every additional $100K of documented basis cuts California tax by about $13.3K.
5. Settle who does what before leaving the Bay Area. Decide before the move who signs, where documents are notarized, and who handles the key handover and escrow paperwork, so that closing takes one trip back, or none.

This article is for decision education and is not legal or tax advice; confirm any action with your attorney and CPA. All dollar figures are illustrative estimates under published rules. California tax rates, the Behavioral Health Services Tax and the Form 593 exemption conditions follow the forms and publications the California Franchise Tax Board issues for each year; residency turns on all of an individual's facts.