Donald is a resident of Colorado. He sells a rental residence he has owned for the last twenty years located in Sacramento, California. He agrees to an installment sale that will include interest and principal payments over the next five years. Which of the following statements is true? 

1. Donald will only be taxed on the installment sale gain amount by the state of California.
2. Donald will only be taxed on the interest portion of the installment sale by the state of California.
3. The sale of the rental residence is not taxed in California, therefore Donald will not need to file a California tax return.
4. Donald will be taxed on both the interest and installment sale gain by the State of California.