We own 1 rental single family home in California and 1 in Maryland. We currently live in California. OK. So California will want tax on all of your worldwide income. You will probably get some credit for taxes paid to other states (like Maryland).If we do 1031 exchanges for rental properties in say, Texas where there is no state income tax, will we have to pay state income taxes in California and Maryland on the exchange properties? I don't know about MD, but CA will allow you to defer tax on any gain, just like the feds. But when you sell the replacement house in TX, CA will want their share of the deferred tax. And if you continue to be a CA resident, they will tax the whole gain, not just the portion deferred from the CA real estate.We know that any Federal tax will be deferred, but, don't know about the state taxes.Keep in mind that as a CA resident, CA will tax you on all of these properties, no matter where they are located. Perhaps you are considering a move to TX sometime after the exchange. In that setting, you would still need to pay CA tax on the gain deferred from the CA house when you sell the replacement house in TX.--Peter
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