CPA Questions to Ask Before Leaving California

If you are selling California real estate as part of your move, these are the questions that directly affect your tax bill:

1. "What is my California tax exposure on the sale of my home?"

   Ask your CPA to calculate your expected California tax liability on the sale, factoring in your adjusted basis, the Section 121 exclusion, and your filing status. This number determines how much you need to plan for — and how much the withholding will cover.

2. "Should I sell before or after establishing Texas residency?"

   The timing of the sale relative to your residency change affects which California return you file, whether the 3.33% withholding applies, and potentially how much of your other income California can tax in the same year. Your CPA should model both scenarios with your actual numbers.

3. "Can I reduce or eliminate the 3.33% withholding at closing?"

   Ask your CPA to prepare Form 593 and supporting documentation before closing. If you qualify for reduced withholding — based on a loss, the Section 121 exclusion, or a gain-based calculation — you can preserve significant cash flow instead of waiting months for a refund.

4. "Do I qualify for the full Section 121 exclusion?"

   Confirm that you meet the 2-of-5-year ownership and use test. If you converted the property from a primary residence to a rental, the rules become more complex. Your CPA should verify the qualification period and calculate the pro-rata exclusion if applicable.

The timing of your move relative to the tax year is one of the most impactful decisions:

1. "How does my timeline affect my residency status for this tax year?"

   If you move on June 15 versus January 15, the FTB's assessment of your residency for that year changes significantly. Your CPA should explain how the timing affects your filing requirements and your tax liability.

2. "Am I at risk of the 9-month presumption?"

   If you will spend more than 9 months (approximately 275 days) in California in the year of your move, the FTB may presume you are a California resident for the full year. Your CPA should count your days and assess the risk.

3. "Should I consider the 546-day safe harbor?"

   If your move is employment-related, the safe harbor provision (546 consecutive days outside California, fewer than 45 days per year in California, limited California-source income) may provide additional protection. Ask whether this applies to your situation.

4. "What is the optimal date to close on my California property sale?"

   The closing date determines your residency status in the year of the sale, which affects withholding requirements and your California tax liability. Work with your CPA to coordinate the closing date with your residency transition timeline.

The FTB conducts hundreds of residency audits annually. Being prepared is your best defense:

1. "What records do I need to keep to defend my residency change?"

   Your CPA should give you a specific list of documents to retain — bank statements, credit card records, travel logs, copies of your Texas license, voter registration, property records, and tax returns. The checklist in Section 5 of this guide provides a starting point.

2. "What is my FTB audit risk, and how long am I exposed?"

   If you file a timely California return, the standard audit window is 4 years. If you do not file, there is no time limit. Your CPA should assess your specific risk level based on the complexity of your situation and the size of any California-source income.

3. "Should I file a California return even if I owe nothing?"

   Yes, almost certainly. Filing starts the statute of limitations. Not filing leaves you exposed indefinitely. Your CPA should prepare and file any required California returns — even if the result is zero tax — to close the audit window.

4. "How should I document my physical presence in Texas?"

   Ask your CPA what kind of presence log they recommend. Some CPAs prefer a detailed daily log; others suggest a simpler monthly summary. The key is consistency and accuracy.

Your move affects more than just your salary and property sale:

1. "What happens to my California-source investment income after I move?"

   Investment income with a California nexus — rental income from California property, income from California businesses, certain pension income — remains taxable by California after you leave. Your CPA should identify all California-source income streams and project your ongoing California filing obligations.

2. "How does my move affect my retirement accounts?"

   California does not tax distributions from most employer-sponsored retirement plans (401(k), 403(b)) or IRAs if you are a nonresident and the income is not from California sources. However, some California public pensions (CalPERS, CalSTRS) may remain taxable by California. Ask your CPA to review your specific accounts.

3. "Should I consider a 1031 exchange for my California investment property?"

   If you own California rental property, a 1031 exchange allows you to defer capital gains by reinvesting in a like-kind property. The replacement property must be in the United States, but it does not have to be in California. This can be a powerful strategy for investment property owners, but it has strict timing requirements (45 days to identify, 180 days to close).

4. "How do I handle California withholding on ongoing investment income?"

   If you receive California-source income after moving, the payer may be required to withhold California taxes. Your CPA can help you file for reduced withholding or exemption if appropriate.

1. "Which California forms do I need to file in the year of my move?"

   You may need to file both Form 540 (resident return) for the portion of the year you were a California resident and Form 540NR (nonresident return) for the portion you were a nonresident. Or you may file a single 540NR covering the full year with apportionment. Your CPA will determine the correct approach based on your specific timeline.

2. "Do I need to file California returns in future years?"

   If you continue to have California-source income (rental income, property sale proceeds, California-source investment income), you will need to file California nonresident returns in those years. Your CPA should project your ongoing filing obligations.

3. "How do I handle estimated tax payments during the transition year?"

   The year of your move is complex for estimated taxes. You may need to make estimated payments to both California (for California-source income) and the federal government. Your CPA should set up an estimated payment schedule that covers your obligations without overpaying.

4. "Should I consider an extension for the year of my move?"

   Filing an extension to October 15 gives you additional time to organize documentation, but the extension is for filing only — any tax owed is still due by April 15. For most relocators, the withholding from the property sale covers the California liability, making an extension less critical. But if your situation is complex, the additional time may be valuable.

Beyond the questions above, bring your complete financial picture to the CPA meeting:

1. "Are there any California-specific deductions or credits I should claim?"

   California offers certain deductions and credits that may apply to your nonresident return. Your CPA should review the full range of available tax benefits.

2. "How does my move affect my overall effective tax rate?"

   A good CPA will run a comprehensive comparison: your total tax burden as a California resident versus your total tax burden as a Texas resident, including property taxes, income taxes, and any ongoing California obligations. This is the number that tells you whether the move saves you money.

3. "What should I do differently if I am self-employed or own a business?"

   Self-employment and business ownership add additional complexity. California may tax business income that has a California nexus even after you leave. Your CPA should evaluate whether your business structure needs to change and whether California franchise tax obligations continue.

4. "What is the worst-case scenario if the FTB challenges my residency?"

   Ask your CPA to explain the potential outcomes of a residency challenge: back taxes on your full income for the years in question, penalties (typically 20% to 40% of the tax owed), and interest. Understanding the downside helps you assess how much effort to put into documentation and defense.

To make the most of your meeting, bring:

• Your last 2-3 years of California and federal tax returns
• A copy of your property tax bill or assessment for any California real estate you own
• The purchase price and date of your California home (for basis calculation)
• A list of all California-source income (rental income, business income, investment income)
• Your planned move date and any real estate closing dates
• Information about retirement accounts and pension plans
• Details about any trusts, partnerships, or other entities that hold California property
• A draft of your Texas residency transition timeline

The more organized you are, the more productive the meeting will be — and the more accurate the tax projections.