California exit tax: What you need to know before moving out

Written by  Andrew Coleman, CPA

Last updated Feb 21, 2026

California doesn’t have an official “exit tax.” What people usually mean by “California exit tax” is a mix of California’s aggressive residency and sourcing rules (which can keep you on the hook for California tax if you still have strong ties or California-source income), and past proposals for a wealth tax that would have tried to keep taxing some high-net-worth former residents for years after they left.

As of February 21, 2026, California has not enacted an ‘exit tax.’ Separately, a proposed ballot initiative often called the ‘2026 Billionaire Tax Act’ would impose a one-time 5% tax on the net worth of certain billionaires who are California residents as of January 1, 2026—but it is a proposal and not current law.

What is the California exit tax?

There is no formal California exit tax on the books today.

The phrase typically refers to proposed wealth-tax bills — most famously AB 2088 — that would have imposed an annual 0.4% tax on worldwide net worth above $30 million (and $15 million for married filing separately). One controversial feature discussed around AB 2088 was the idea of continuing the tax for a period (commonly described as up to 10 years) after someone left California. That proposal did not become law.

In practice, the biggest ‘exit tax’ risk is residency: California taxes residents on worldwide income, and residency is determined by a facts-and-circumstances analysis (e.g., whether you’re in CA for other than a temporary or transitory purpose, or domiciled in CA but away only temporarily).

This proposal aimed to recoup revenue and prevent capital gains tax avoidance. The federal expatriation tax, detailed on the IRS expatriation page, is a separate consideration that applies to individuals renouncing US citizenship or long-term permanent residency.

Who is subject to the California exit tax?

Since California has no enacted exit tax, there isn’t a special “exit tax test” or a rule like “nine out of the last 10 years.”

Instead, what matters is whether California considers you a resident, part-year resident, or nonresident — and whether you continue to earn California-source income after you move.

As a nonresident, California generally taxes only California-source income, including (but not limited to):

• Services performed in California

• Rent from California real property

• Gain from the sale/transfer of California real property

• Income from a California business, trade, or profession

As a part-year resident, California generally taxes:

• Worldwide income for the portion of the year you were a resident, and

• California-source income for the portion of the year you were a nonresident

Even after you become a nonresident, California can still tax California-source income, such as:

• rent from California real property,
• gain on the sale/transfer of California real property,
• services performed in California,
• income from a California business/trade/profession.

To minimize potential tax obligations, consider selling California property before departure, severing business ties within the state, updating your legal documents and residency status, and consulting with a tax professional for personalized strategies.

How much is the California exit tax?

Because California has no enacted ‘exit tax,’ there is no special ‘exit-tax calculation.’ Your actual California liability after a move depends on (1) whether California still views you as a resident/part-year resident/nonresident, and (2) whether you continue to earn California-source income (such as CA real-property rental income or gain from CA real property).

Strategies to minimize tax liability when leaving California

If you’re looking to minimize your tax liability when leaving California, it requires careful planning and execution. Implementing these tactics can help reduce your California exit tax burden:

Asset management strategies:

1. Transfer investments and financial accounts to your new state of residence before changing domicile.
2. Consider establishing trusts in more tax-friendly states.
3. Evaluate the timing of asset sales to optimize tax implications.
4. Structure business interests to minimize California-source income.

Timeline planning:

• Begin preparations 12-18 months before your planned departure.
• Document your intent to establish domicile in another state.
• Maintain detailed records of your time spent outside of California.
• Plan major financial transactions around your departure date.

Pro tip: Work with experienced tax professionals who understand both California tax law and multi-state taxation issues.

Documentation requirements:

• register to vote in your new state
• obtain a new driver's license
• update estate planning documents
• change vehicle registrations
• establish social and community ties in your new location
• keep detailed records of your presence outside of California

These strategic moves can significantly impact your tax liability when leaving the state.

What if you’re renouncing US citizenship or green card?

If you're planning to expatriate and renounce your US citizenship or surrendering your long-term green card, you may be subject to both federal and California-level tax scrutiny.

Key points to consider:

1. The federal expatriation tax (IRC §877A) may apply if your net worth exceeds $2 million, your average annual tax liability over the past five years exceeds a certain threshold, or if you fail a certification test.
2. If you are a California resident at the time of expatriation, your California-source income and capital gains may still be taxed.

Federal expatriation tax rules (IRC §877A) are separate from California. California does not have a special ‘expatriation tax’; your California exposure generally turns on whether you are a California resident at the relevant time and whether you have California-source income. Proposals like AB 2088 (failed) and the more recent 2026 Billionaire Tax Act (proposed ballot measure) are not current law and should not be described as something California ‘will’ assess.

Before expatriating, consult with a tax expert. The sequence and timing of your moves, both geographically and legally, can drastically affect your tax exposure.

The pros and cons of the California exit tax

Understanding both sides of the California exit tax debate is key for making an informed decision.

Pros:

• It helps maintain state revenue for essential services.
• It prevents sudden budget shortfalls from wealthy residents departing.
• It ensures long-term residents contribute to the infrastructure they've benefited from.
• It creates a more predictable tax base for state planning.
• It reduces immediate tax burden spikes on remaining residents.

Cons:

• It may discourage high-net-worth individuals from staying in or moving to California.
• It could lead to a "brain drain" as high-income earners leave the state, impacting business investment.
• It adds complexity to state tax regulations.
• It may potentially violate the constitutional right to travel.
• It may be challenging to enforce across state lines.

A balanced understanding of these factors can help you weigh up your decision when considering a move away from the Golden State of California.

Leaving California? Make sure you're tax-compliant with our help!

Don't navigate California's complex tax landscape alone. Our team at Taxes for Expats specializes in helping individuals like you manage their tax obligations when leaving the state. 

We offer comprehensive services including:

• personalized exit tax planning strategies
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• documentation and compliance support
• ongoing tax support in your new location

Our experienced professionals will:

• analyze your specific situation
• develop a customized exit strategy
• ensure compliance with all regulations
• minimize your tax exposure
• provide ongoing support after your move

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