diff --git a/api/krusty/localconfig_test.go b/api/krusty/localconfig_test.go
new file mode 100644
index 000000000..2b84d48d1
--- /dev/null
+++ b/api/krusty/localconfig_test.go
@@ -0,0 +1,70 @@
+// Copyright 2019 The Kubernetes Authors.
+// SPDX-License-Identifier: Apache-2.0
+
+package krusty_test
+
+import (
+	"testing"
+
+	kusttest_test "sigs.k8s.io/kustomize/api/testutils/kusttest"
+)
+
+// This test checks that if a resource is annotated as "local-config", this resource won't be ignored until
+// all transformations have completed. This makes sure the local resource can be used as a transformation input.
+// See https://github.com/kubernetes-sigs/kustomize/issues/4124 for details.
+func TestSKipLocalConfigAfterTransform(t *testing.T) {
+	th := kusttest_test.MakeHarness(t)
+	th.WriteK(".", `apiVersion: kustomize.config.k8s.io/v1beta1
+kind: Kustomization
+resources:
+  - pod.yaml
+  - deployment.yaml
+transformers:
+  - replacement.yaml
+`)
+	th.WriteF("pod.yaml", `apiVersion: v1
+kind: Pod
+metadata:
+  name: buildup
+  annotations:
+    config.kubernetes.io/local-config: "true"
+spec:
+  containers:
+    - name: app
+      image: nginx
+`)
+	th.WriteF("deployment.yaml", `apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: buildup
+`)
+	th.WriteF("replacement.yaml", `
+apiVersion: builtin
+kind: ReplacementTransformer
+metadata:
+  name: buildup
+replacements:
+- source:
+    kind: Pod
+    fieldPath: spec
+  targets:
+  - select:
+      kind: Deployment
+    fieldPaths:
+    - spec.template.spec
+    options:
+      create: true
+`)
+	m := th.Run(".", th.MakeDefaultOptions())
+	th.AssertActualEqualsExpected(m, `apiVersion: apps/v1
+kind: Deployment
+metadata:
+  name: buildup
+spec:
+  template:
+    spec:
+      containers:
+      - image: nginx
+        name: app
+`)
+}