Federal law keeps California from taxing a non-California servicemember's military pay (50 U.S.C. § 4001(b)), but that protection covers pay for military service, not rent. Under FTB Publication 1032, "all other income of nonresident military servicemembers from California sources is subject to California tax," and California-source income includes real property located in California. If you own a rental here and live elsewhere, a property manager generally withholds 7% of the rent it pays you (FTB Publication 1017).

The short version

  • For tax purposes you are generally a resident of the state you entered the military from, and you keep that domicile when you move on orders.
  • If you are not domiciled in California, California does not tax your military pay, but it does tax rent and gain from California property.
  • A California-domiciled member who leaves on PCS orders becomes a nonresident; after departure, only California-source income is taxed.
  • Nonresidents file Form 540NR. California taxes only your California income, but your income from everywhere sets the rate.
  • Property managers generally withhold 7% of rent paid to nonresident owners. Publication 1032 creates no military exemption from it.
  • Selling a California home brings a separate withholding rule on Form 593.

Domicile: where you are a resident for tax

FTB Publication 1032 (2025, for tax year 2025 returns) starts here: "Generally, for tax purposes, you are considered a resident of the state from which you entered the military." Domicile is the one place "Where you maintain a true, fixed and permanent home" and "To which you intend to return whenever you are absent." Federal law adds that a servicemember "shall neither lose nor acquire a residence or domicile for purposes of taxation" by being present or absent "solely in compliance with military orders" (50 U.S.C. § 4001(a)(1)).

Your situationHow California treats you (Pub 1032)
Domiciled in California, stationed in CaliforniaResident
Domiciled in California, on TDY outside California, or on sea duty with a California home portResident
Domiciled in California, stationed outside California on PCS ordersNonresident; after departure, only California-source income is taxed
Domiciled elsewhere, stationed in California on PCS ordersNonresident, unless you establish a California domicile

For spouses, the MSRRA (2009), as amended in 2018 and by the VAEIA in 2023, lets a servicemember and spouse elect, for any taxable year of the marriage, to use the servicemember's domicile, the spouse's domicile or the servicemember's permanent duty station (50 U.S.C. § 4001(a)(2) and (3); Pub 1032). To claim it, Pub 1032 says to write "MSRRA/VAEIA" at the top of the return in blue ink. Even for a qualifying spouse, California-source income still includes income from real property located in California.

Why your rent is still taxed

The military pay rule in 50 U.S.C. § 4001(b) speaks only of "Compensation of a servicemember for military service." Rent is different. Pub 1032 lists "Real or tangible personal property located in California" as California-source income, and its own example reports a gain from selling California rental property on Schedule CA (540NR). FTB Publication 1017 says the same about rent: "income derived from real property... located in California is California source income and is subject to California tax," including rents and the gain on a sale.

How the tax is figured. Nonresidents file Form 540NR with Schedule CA (540NR). You figure income as if you were a resident for the whole year, then California taxes your California income at the effective rate on your total income. Servicemembers domiciled outside California, and their spouses, leave military compensation out when computing that rate on nonmilitary income (Pub 1032).

Do you have to file? For tax year 2025, a nonresident with California-source income files if gross income or adjusted gross income from all sources, figured under California law, is over the chart amount. For example, for a single filer under 65 with no dependents, that is $22,941 of gross income or $18,353 of AGI (Form 540NR booklet). The test counts income from everywhere, not just California. Pub 1032 also notes you may want to file to get a refund of withholding shown on Form 592-B or Form 593.

Rates. For 2025, California's top regular rate is 12.3%, plus 1% on taxable income over $1 million, and California has no lower rate for capital gains. California's rental rules also differ from federal rules in places, such as bonus depreciation; see California vs. federal rental tax rules.

Withholding on rent: 7% through a manager

FTB Publication 1017 (rev. 02/2026) sets the rule for nonresident owners:

  1. Who withholds. Rent payments to nonresident owners are subject to 7% withholding when paid in the course of the payer's business. "tenants of residential property are not required to withhold on payments made directly to nonresident owners, but payments from property management companies are subject to withholding."
  2. The first $1,500. Withholding is optional until payments exceed $1,500 in a calendar year, then required.
  3. Fee first. A California property manager may deduct its management fee before computing the 7%. FTB's own example: on $4,000 of rent with a $250 fee, 7% of $3,750 is $262.
  4. Your statement. The manager gives you Form 592-B by January 31 of the next year, showing the rent and the tax withheld.
  5. Your credit. You claim the withholding on Form 540NR (line 83 on the 2025 form).

Reducing it. Form 590 is for payees who certify an exemption, such as California residents; it is not the route for a nonresident owner. A nonresident can ask for a waiver on Form 588. FTB may grant one if you have California returns on file for the two most recent years you had a filing requirement and are current on any tax owed. Waivers last up to two years, and the request should go in at least 21 business days before a payment. Pub 1032 does not exempt servicemembers from rent withholding. For the full rule, see nonresident owner rent withholding.

Selling: Form 593

When a California home is sold, the escrow holder generally withholds 3 1/3% of the sales price, or the seller can elect an alternative based on estimated gain. This applies to sellers generally, not just nonresidents. Withholding is not required when the price is $100,000 or less, in a foreclosure, or when the seller certifies an exemption on Form 593. One exemption covers a home that was your principal residence under IRC § 121; but "If the last use of the property was as a vacation home, second home, or rental, you do not qualify" for the separate "last used" exemption. The 2025 Form 593 instructions point military sellers to Pub 1032, which does not create a special military exemption from this withholding.

For the military home sale rules, see the 10-year home sale exclusion suspension, and for the escrow side, California withholding when you sell a rental.

For owners

  • Confirm your domicile before you file. It decides which column of the table above you are in.
  • Give your property manager the right form: Form 590 if you are a California resident, or an approved Form 588 waiver if you have one.
  • Keep every Form 592-B and Form 593 you receive. They are credits on your California return.
  • Track rent and expenses by property all year with the rental cash flow calculator.
  • If you are stationed outside the United States, the FTB says "in most cases, we will defer any audit activity for up to 180 days following your return." Combat zone and overseas filing extensions are in the deployment checklist.
  • Retiring in California? For tax years 2025 through 2029, California lets eligible retirees exclude up to $20,000 of uniformed-services retirement pay if federal AGI is $125,000 or less ($250,000 for joint filers) (R&TC §§ 17132.9, 17132.10).

McKee Properties manages rentals from its Coronado office; contact us with questions about your property.

Help on base

Your installation legal assistance office may be able to answer questions about domicile and residency for eligible service members. To find a legal office, Military OneSource points to its Legal Services Locator and to 800-342-9647. Your installation housing office can help with the rental side of a move.

Frequently asked questions

Does California tax my military pay if I am stationed here but domiciled elsewhere?

No. Under 50 U.S.C. § 4001(b), military compensation is not treated as income from the state where you serve on orders if you are not domiciled there, and Pub 1032 says California does not tax that pay. Other California-source income, such as rent from a California home, is taxed.

I left California on PCS orders. Do I still pay California tax on my rental?

Yes, on the rental. Pub 1032 says California servicemembers who leave under PCS orders become nonresidents, and after departure "only income from California sources is subject to tax by California." Rent and gain from California real property are California-source income, so you file Form 540NR if you meet the filing threshold.

Will my property manager withhold tax from my rent?

If you are a nonresident owner, generally yes: 7% of rent paid in the course of the manager's business, required once payments for the year exceed $1,500, and a California manager may deduct its management fee first (FTB Publication 1017). Tenants who pay you directly are not required to withhold. The withholding is a credit on your Form 540NR.

Can I use Form 590 to stop the withholding?

Form 590 is a certificate for payees who are exempt, such as California residents. A nonresident owner's route is a Form 588 waiver request, which FTB may grant if your California returns for the two most recent required years are on file and you are current. Pub 1032 does not give servicemembers a separate exemption.

Is there withholding when I sell the house?

Usually. Form 593 withholding is generally 3 1/3% of the sales price unless an exemption applies, such as a home that qualifies as your principal residence under IRC § 121. The "last used as a principal residence" exemption does not apply if the home's last use was as a rental. Withholding is a credit, not the final tax.

This is general information, not legal or tax advice. Rules change; confirm your situation with your installation legal assistance office, a California attorney or a tax professional.

Sources

Verified October 19, 2026.

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