Difference between two lists

Using Except is exactly the right way to go. If your type overrides Equals and GetHashCode, or you’re only interested in reference type equality (i.e. two references are only “equal” if they refer to the exact same object), you can just use:

var list3 = list1.Except(list2).ToList();

If you need to express a custom idea of equality, e.g. by ID, you’ll need to implement IEqualityComparer<T>. For example:

public class IdComparer : IEqualityComparer<CustomObject>
{
    public int GetHashCode(CustomObject co)
    {
        if (co == null)
        {
            return 0;
        }
        return co.Id.GetHashCode();
    }

    public bool Equals(CustomObject x1, CustomObject x2)
    {
        if (object.ReferenceEquals(x1, x2))
        {
            return true;
        }
        if (object.ReferenceEquals(x1, null) ||
            object.ReferenceEquals(x2, null))
        {
            return false;
        }
        return x1.Id == x2.Id;
    }
}

Then use:

var list3 = list1.Except(list2, new IdComparer()).ToList();

Note that this will remove any duplicate elements. If you need duplicates to be preserved, it would probably be easiest to create a set from list2 and use something like:

var list3 = list1.Where(x => !set2.Contains(x)).ToList();