Leaving the Golden State doesn’t always mean leaving its tax obligations behind. California may continue to tax former residents who maintain financial ties to the state. The proposed exit tax under Assembly Bill 2088 raised concern among high-net-worth individuals considering a move. It could impose a tax on unrealized capital gains and broader global wealth. …
Leaving the Golden State doesn’t always mean leaving its tax obligations behind. California may continue to tax former residents who maintain financial ties to the state. The proposed exit tax under Assembly Bill 2088 raised concern among high-net-worth individuals considering a move. It could impose a tax on unrealized capital gains and broader global wealth. California Franchise Tax Board enforces potential ongoing tax obligations even after official residency ends. This article outlines what the California exit tax means, who it affects, and how to plan accordingly. Read the full breakdown to understand your tax situation before making a permanent California departure.
Leaving California: Residency Rules and Their Consequences
When individuals move out of California, residency status becomes central to future state tax obligations. The Franchise Tax Board closely reviews ties to the state, including California property, voting registration, and financial accounts. Even after residents leave the state, the tax year they relocate may still trigger ongoing tax liability. California residents who retain substantial financial ties or capital gains within the state risk being taxed as residents.
Consequently, leaving California doesn’t always eliminate income from California–based tax exposure. To avoid being treated as a California resident, sever legal documents and financial ties straightaway and file a nonresident California tax return.
What is the California Exit Tax?
The proposed California exit tax is part of Assembly Bill 2088, aiming to impose taxes on individuals who leave the state but maintain significant financial assets. It would apply to former California residents and expats with substantial wealth, focusing on unrealized capital gains and asset valuation. The Franchise Tax Board could enforce tax obligations for years following departure, regardless of whether the individual establishes residency in another state.
How Much is the California Exit Tax?
Assembly Bill 2088 proposed a 0.4% annual tax on wealth exceeding $30 million for individuals. For married taxpayers filing separately, the wealth threshold begins at $15 million, applied to worldwide assets including California real estate and investments. The California exit tax would be calculated based on the fair market value of assets at departure.
Additionally, capital gains tax regulations still apply to income from California, even after residents relocate. Hence, despite leaving California, expats could still owe substantial amounts. The proposed tax may persist for up to ten years post-departure, depending on ongoing financial ties within the state.
Who Has to Pay California Exit Tax?
California residents: Those leaving the state while holding significant wealth or financial assets.
High-net-worth individuals: Anyone with a net worth exceeding $30 million or $15 million for married taxpayers filing separately.
Expats: Especially those earning income from California sources or retaining California property.
Business owners: Founders or stakeholders with unrealized capital gains in businesses established within the state.
Investors: Individuals realizing capital gains or passive income from investments tied to California.
Those with ties to the state: Residents moving but failing to sever legal, personal, or financial ties altogether.
California proposed the exit tax to address potential revenue loss as high-net-worth individuals move to another state. The state of California aimed to preserve tax revenue from individuals with a net worth exceeding legal thresholds. Assembly Bill 2088 highlighted growing concerns about residents relocating while retaining financial ties within the state.
Key Elements of the Proposed Wealth Tax Bill:
Targets individuals with a net worth exceeding $30 million
Includes $15 million for married taxpayers filing separately
Applies tax to unrealized capital gains and worldwide fair market value assets
Enables the Franchise Tax Board to enforce ongoing tax obligations for up to ten years
Designed to capture income from California, even after departure
How the Exit Tax Would Affect High-Net-Worth Individuals:
High-net-worth individuals could face extended tax liability despite moving to a new state. The tax may apply to unrealized capital gains, California real estate, and assets valued at departure. Consequently, even expats with no current California residency may still need to pay California taxes for years afterward, depending on financial ties.
Why This Proposal Is Stirring National Debate:
The proposed tax raised concerns about constitutional rights and interstate tax rules. Many argued it penalizes individuals for wealth accumulation and relocation. Comparatively, no other state has suggested taxing unrealized gains post-departure. Tax professionals and policymakers alike continue to question its fairness, legality, and long-term economic implications in 2025.
Tax Liability After Leaving the State
Leaving California does not automatically end tax liability, particularly when financial ties remain within the state. The Franchise Tax Board reviews legal documents, income from California, and any ownership of California real estate. Consequently, expats may still have ongoing tax obligations based on capital gains tax regulations and other state taxes. Therefore, proper tax planning with a qualified tax professional becomes essential before severing residency or filing in a new state.
Tax Planning for California Expats
Work with a qualified tax professional to assess your potential ongoing tax obligations.
Reduce or eliminate financial ties to the state, including businesses and property holdings.
File accurate legal documents to support your new state of residence status.
Account for capital gains and the proposed exit tax in financial projections.
Review the California wealth tax proposal with expert advice before leaving the Golden State.
California Departure Checklist for Expats
Before leaving California, cancel voter registration, driver’s license, and all state-based insurance policies. Sell or transfer ownership of California property holdings to reduce future tax risk. Notify the California Franchise Tax Board of any residency changes or call 800-852-5711 for assistance. Also, gather legal documents that clearly support your new state of residence status straightaway and permanently.
Common Traps That Keep You Tied to California
Maintaining California real estate or rental income streams.
Retaining business interests still connected to the state.
Using a California address on federal or state tax documents.
Keeping financial accounts or clubs active within the state.
Failing to update legal documents to reflect non-residency status.
State Taxes Beyond Borders: What You Might Still Owe
Former residents may remain subject to state taxes on income sourced from California. The California Franchise Tax Board could claim tax jurisdiction if ties persist. Although you’re in a new state of residence, the proposed California exit tax applies if your financial ties remain intact. Therefore, tax discussions must include multistate obligations.
Conclusion
The proposed California exit tax reflects a growing effort to prevent wealth migration from the state. It targets former residents with significant net worth, especially those retaining California property or income sources. The California Franchise Tax Board may enforce complex tax rules based on past financial ties. A qualified tax professional can help reduce exposure to potential exit tax liabilities. Before changing your state of residence, assess whether you’re still subject to state taxes. Filing separately, severing California ties, and proper tax planning remain vital steps. Do you believe California should have the authority to tax wealth after residents leave?
If you’re interested, you can check the New York State Tax Refund for additional helpful information on related tax matters.
FAQs
1. Will expats owe taxes under the proposed exit tax?
Yes, especially those with global assets, California property, or capital gains sourced within the state.
2. Does owning property in California keep me tied to the state?
Yes, property holdings can trigger ongoing tax liability under state tax laws.
3. How can I avoid California exit tax exposure?
Sever all California ties, update legal documents, and work with a tax professional for planning.
4. What role does the Franchise Tax Board play?
The board monitors residency status, financial ties, and enforces applicable tax rules.
5. Will the California wealth tax apply nationwide?
No, it applies only to former California residents with significant wealth and retained state connections.
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