diff --git a/api/internal/accumulator/resaccumulator.go b/api/internal/accumulator/resaccumulator.go
index 2723feafcf..9345537572 100644
--- a/api/internal/accumulator/resaccumulator.go
+++ b/api/internal/accumulator/resaccumulator.go
@@ -168,3 +168,23 @@ func (ra *ResAccumulator) FixBackReferences() (err error) {
 	return ra.Transform(
 		newNameReferenceTransformer(ra.tConfig.NameReference))
 }
+
+// Intersection drops the resources which "other" does not have.
+func (ra *ResAccumulator) Intersection(other resmap.ResMap) error {
+	for _, curId := range ra.resMap.AllIds() {
+		toDelete := true
+		for _, otherId := range other.AllIds() {
+			if otherId == curId {
+				toDelete = false
+				break
+			}
+		}
+		if toDelete {
+			err := ra.resMap.Remove(curId)
+			if err != nil {
+				return err
+			}
+		}
+	}
+	return nil
+}
diff --git a/api/internal/target/kusttarget.go b/api/internal/target/kusttarget.go
index 45e021e245..d2929a03f3 100644
--- a/api/internal/target/kusttarget.go
+++ b/api/internal/target/kusttarget.go
@@ -10,6 +10,7 @@ import (
 	"strings"
 
 	"github.com/pkg/errors"
+
 	"sigs.k8s.io/kustomize/api/builtins"
 	"sigs.k8s.io/kustomize/api/ifc"
 	"sigs.k8s.io/kustomize/api/internal/accumulator"
@@ -218,9 +219,26 @@ func (kt *KustTarget) accumulateTarget(ra *accumulator.ResAccumulator, origin *r
 		return nil, errors.Wrapf(
 			err, "merging vars %v", kt.kustomization.Vars)
 	}
+	err = kt.IgnoreLocal(ra)
+	if err != nil {
+		return nil, err
+	}
 	return ra, nil
 }
 
+// IgnoreLocal drops the local resource by checking the annotation "config.kubernetes.io/local-config".
+func (kt *KustTarget) IgnoreLocal(ra *accumulator.ResAccumulator) error {
+	rf := kt.rFactory.RF()
+	if rf.IncludeLocalConfigs {
+		return nil
+	}
+	remainRes, err := rf.DropLocalNodes(ra.ResMap().ToRNodeSlice())
+	if err != nil {
+		return err
+	}
+	return ra.Intersection(kt.rFactory.FromResourceSlice(remainRes))
+}
+
 func (kt *KustTarget) runGenerators(
 	ra *accumulator.ResAccumulator) error {
 	var generators []resmap.Generator
diff --git a/api/krusty/localconfig_test.go b/api/krusty/localconfig_test.go
new file mode 100644
index 0000000000..2b84d48d12
--- /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
+`)
+}
diff --git a/api/resource/factory.go b/api/resource/factory.go
index a452293382..cbda872376 100644
--- a/api/resource/factory.go
+++ b/api/resource/factory.go
@@ -124,14 +124,34 @@ func (rf *Factory) SliceFromBytes(in []byte) ([]*Resource, error) {
 	return rf.resourcesFromRNodes(nodes), nil
 }
 
+// DropLocalNodes removes the local nodes by default. Local nodes are detected via the annotation `config.kubernetes.io/local-config: "true"`
+func (rf *Factory) DropLocalNodes(nodes []*yaml.RNode) ([]*Resource, error) {
+	var result []*yaml.RNode
+	for _, node := range nodes {
+		if node.IsNilOrEmpty() {
+			continue
+		}
+		md, err := node.GetValidatedMetadata()
+		if err != nil {
+			return nil, err
+		}
+
+		if rf.IncludeLocalConfigs {
+			result = append(result, node)
+			continue
+		}
+		localConfig, exist := md.ObjectMeta.Annotations[konfig.IgnoredByKustomizeAnnotation]
+		if !exist || localConfig == "false" {
+			result = append(result, node)
+		}
+	}
+	return rf.resourcesFromRNodes(result), nil
+}
+
 // ResourcesFromRNodes converts RNodes to Resources.
 func (rf *Factory) ResourcesFromRNodes(
 	nodes []*yaml.RNode) (result []*Resource, err error) {
-	nodes, err = rf.dropBadNodes(nodes)
-	if err != nil {
-		return nil, err
-	}
-	return rf.resourcesFromRNodes(nodes), nil
+	return rf.DropLocalNodes(nodes)
 }
 
 // resourcesFromRNode assumes all nodes are good.
@@ -224,38 +244,20 @@ func (rf *Factory) convertObjectSliceToNodeSlice(
 func (rf *Factory) dropBadNodes(nodes []*yaml.RNode) ([]*yaml.RNode, error) {
 	var result []*yaml.RNode
 	for _, n := range nodes {
-		ignore, err := rf.shouldIgnore(n)
-		if err != nil {
+		if n.IsNilOrEmpty() {
+			continue
+		}
+		if _, err := n.GetValidatedMetadata(); err != nil {
 			return nil, err
 		}
-		if !ignore {
-			result = append(result, n)
+		if foundNil, path := n.HasNilEntryInList(); foundNil {
+			return nil, fmt.Errorf("empty item at %v in object %v", path, n)
 		}
+		result = append(result, n)
 	}
 	return result, nil
 }
 
-// shouldIgnore returns true if there's some reason to ignore the node.
-func (rf *Factory) shouldIgnore(n *yaml.RNode) (bool, error) {
-	if n.IsNilOrEmpty() {
-		return true, nil
-	}
-	if !rf.IncludeLocalConfigs {
-		md, err := n.GetValidatedMetadata()
-		if err != nil {
-			return true, err
-		}
-		_, ignore := md.ObjectMeta.Annotations[konfig.IgnoredByKustomizeAnnotation]
-		if ignore {
-			return true, nil
-		}
-	}
-	if foundNil, path := n.HasNilEntryInList(); foundNil {
-		return true, fmt.Errorf("empty item at %v in object %v", path, n)
-	}
-	return false, nil
-}
-
 // SliceFromBytesWithNames unmarshals bytes into a Resource slice with specified original
 // name.
 func (rf *Factory) SliceFromBytesWithNames(names []string, in []byte) ([]*Resource, error) {
diff --git a/api/resource/factory_test.go b/api/resource/factory_test.go
index f03cba8f46..ed186a8b2b 100644
--- a/api/resource/factory_test.go
+++ b/api/resource/factory_test.go
@@ -13,6 +13,7 @@ import (
 	. "sigs.k8s.io/kustomize/api/resource"
 	"sigs.k8s.io/kustomize/api/types"
 	"sigs.k8s.io/kustomize/kyaml/filesys"
+	"sigs.k8s.io/kustomize/kyaml/kio"
 )
 
 func TestRNodesFromBytes(t *testing.T) {
@@ -465,30 +466,6 @@ metadata:
 `, `
 apiVersion: v1
 kind: ConfigMap
-metadata:
-  name: winnie
-`},
-			},
-		},
-		"localConfigYaml": {
-			input: []byte(`
-apiVersion: v1
-kind: ConfigMap
-metadata:
-  name: winnie-skip
-  annotations:
-    # this annotation causes the Resource to be ignored by kustomize
-    config.kubernetes.io/local-config: ""
----
-apiVersion: v1
-kind: ConfigMap
-metadata:
-  name: winnie
-`),
-			exp: expected{
-				out: []string{`
-apiVersion: v1
-kind: ConfigMap
 metadata:
   name: winnie
 `},
@@ -670,3 +647,93 @@ data:
 		})
 	}
 }
+
+func TestDropLocalNodes(t *testing.T) {
+	testCases := map[string]struct {
+		input    []byte
+		expected []byte
+	}{
+		"localConfigUnset": {
+			input: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie
+`),
+			expected: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie
+`),
+		},
+		"localConfigSet": {
+			input: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie-skip
+  annotations:
+     # this annotation causes the Resource to be ignored by kustomize
+     config.kubernetes.io/local-config: ""
+`),
+			expected: nil,
+		},
+		"localConfigSetToTrue": {
+			input: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie-skip
+  annotations:
+	 config.kubernetes.io/local-config: "true"
+		`),
+			expected: nil,
+		},
+		"localConfigSetToFalse": {
+			input: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie
+  annotations:
+    config.kubernetes.io/local-config: "false"
+`),
+			expected: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  annotations:
+    config.kubernetes.io/local-config: "false"
+  name: winnie
+`),
+		},
+		"localConfigMultiInput": {
+			input: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie
+---
+apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie-skip
+  annotations:
+    config.kubernetes.io/local-config: "true"
+`),
+			expected: []byte(`apiVersion: v1
+kind: ConfigMap
+metadata:
+  name: winnie
+`),
+		},
+	}
+	for n := range testCases {
+		tc := testCases[n]
+		t.Run(n, func(t *testing.T) {
+			nin, _ := kio.FromBytes(tc.input)
+			res, err := factory.DropLocalNodes(nin)
+			assert.NoError(t, err)
+			if tc.expected == nil {
+				assert.Equal(t, 0, len(res))
+			} else {
+				actual, _ := res[0].AsYAML()
+				assert.Equal(t, tc.expected, actual)
+			}
+		})
+	}
+}