Leaving Orange County for Arizona? The $100k "Exit Tax" Trap to Avoid

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Are you an Orange County homeowner dreaming of a more affordable retirement? With a median home price of less than half of OC's, Arizona looks like a financial slam-dunk. You're dreaming of selling your $1.5 million home, paying cash for a beautiful desert property, and banking the rest.

On paper, Arizona is the clear winner. But before you call the movers, there's a "parting gift" from the state of California that most sellers don't factor in—a hidden trap that could cost you over $100,000.

The On-Paper Comparison: OC vs. AZ

It's no secret that your dollar goes further in Arizona.

  • Housing: The median home price in Orange County is over $1 million. In popular Arizona retirement areas, it's less than half of that. You can sell here and become an all-cash buyer there.
  • Taxes: California has one of the highest state income taxes in the nation (which hits pensions and retirement accounts), plus high property taxes. Arizona has a more favorable flat tax and lower property taxes.
  • Cost of Living: From gas (often $2/gallon cheaper) to groceries, your daily expenses will drop significantly in Arizona.

The "Hidden Cost": Lifestyle & Family

This is where the numbers stop and life begins. As an OC local, I'm still here for a reason. The unbeatable weather, the beaches, the mountains—our lifestyle is second to none. The biggest "cost" of moving to Arizona is leaving your established network of family, friends, and doctors. You must factor in travel costs to fly back for holidays and grandkids' birthdays.

The $100,000 "Exit Tax" Trap: Capital Gains

Here is the trap. While California doesn't have an official "exit tax" (yet), it does have a Capital Gains Tax on your primary residence.

Here’s how it works:

  1. The state gives you a tax break on the profit from your home sale: $250,000 for an individual and $500,000 for a married couple.
  2. Any profit above that exemption is taxed as regular income.

Let's do the math. You bought your OC home 30 years ago for $200,000. You sell it today for $1.7 million, making a $1.5 million profit.

  • You are a married couple, so you get the $500,000 exemption.
  • You still have $1,000,000 in taxable profit.
  • At a high tax rate, you could easily owe the state of California $100,000 or more just for selling your home.

This "parting gift" can be a devastating financial surprise if you haven't planned for it.

The Verdict: Is It Worth It?

While Arizona is undeniably cheaper, the best decision isn't just about the numbers. It's about balancing a huge financial win with the lifestyle and family connections you'd be leaving behind—and making sure you budget for California's "exit tax" on your way out.

This is a massive decision. Before you make a move, sit down with a professional and run the real numbers.