Moving states to avoid capital gains taxes

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Count of Notre Dame
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Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Mon Apr 13, 2020 10:58 am

Hi Everyone,

I am in my mid 30s and I have started running some investment projections now that my wife and I are starting to build up money in our taxable investment account. We currently live in California and have no plans to move, but what I started thinking about is the taxes we would have to pay on a ~$5m taxable account if we were to sell our entire portfolio while living in California to pay off our mortgage. Has anyone looked at moving to a no income tax state such as Washington in order to avoid taxes on their investment portfolio? Seems a worthwhile endeavor for a couple of years to avoid $500k or more in taxes? Would you have to sell your home in California, or at least rent it out, to prove you are no longer a resident of California?

Thanks in advance for any stories or advice you can share, thank you!

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whodidntante
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Re: Moving states to avoid capital gains taxes

Post by whodidntante » Mon Apr 13, 2020 11:05 am

Be prepared for California to claim you are resident and come after you for the taxes. It may be worth speaking to a tax attorney or doing plenty of research yourself.

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MP123
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Re: Moving states to avoid capital gains taxes

Post by MP123 » Mon Apr 13, 2020 11:26 am

The CA FTB is famous for being very aggressive about that sort of thing. You would probably need to cut all ties with CA including selling the house so they don't consider you a non- or part time-resident.

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Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Mon Apr 13, 2020 11:33 am

MP123 wrote:
Mon Apr 13, 2020 11:26 am
The CA FTB is famous for being very aggressive about that sort of thing. You would probably need to cut all ties with CA including selling the house so they don't consider you a non- or part time-resident.
Gotcha - yes I'd be willing to do that. Maybe sell my primary home and rent in Washington for a few years after my daughters are independent.

fareastwarriors
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Re: Moving states to avoid capital gains taxes

Post by fareastwarriors » Mon Apr 13, 2020 11:33 am

If you do plan to move for tax reasons, you need to really move.
Sell/rent out your Ca house, rent/buy in your new state.
Cut off all ties to Ca and establish new ties in new state.


Why pay down mortgage? With your amount of assets, you can get some great relationships rates for a mortgage, probably in the low 3s, if not less.

bsteiner
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Re: Moving states to avoid capital gains taxes

Post by bsteiner » Mon Apr 13, 2020 11:57 am

It will turn on the facts. A close case that the taxpayer won was Matter of Blatt: https://www.dta.ny.gov/pdf/determinatio ... 04.det.pdf.

BW1985
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Re: Moving states to avoid capital gains taxes

Post by BW1985 » Mon Apr 13, 2020 11:58 am

whodidntante wrote:
Mon Apr 13, 2020 11:05 am
Be prepared for California to claim you are resident and come after you for the taxes. It may be worth speaking to a tax attorney or doing plenty of research yourself.
+1. I would make sure your residency is fully buttoned up and probably have a waiting period between the new residency and selling taxable.
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?

anonsdca
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Re: Moving states to avoid capital gains taxes

Post by anonsdca » Mon Apr 13, 2020 12:07 pm

I did exactly what you are suggesting - but for a different reason. I did it for the "payroll" state tax break. No state income tax was a massive raise for me.

I kept my house and rented it out for five years, sold last year. CA takes a cut of your quarterly rental earnings (can recall the percent but it is significant) and then you have to file to get them back each year. I did, no issues. Got almost all of it back. When I sold, CA also raked me over the coals with taxes. I will have to deal with 2019 CA, but it will be my last time, and the full cut from CA will be made and for SO many reason, I am very glad.

Alan S.
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Re: Moving states to avoid capital gains taxes

Post by Alan S. » Mon Apr 13, 2020 3:14 pm

As usual, an escape from state income taxes may mean you pay more in other taxes such as sales and property taxes. This warrants a review of how your assets will be taxed in the new state, and what you will be purchasing. And projecting that is more challenging now because states might need to adopt new revenue streams to dig out of this fiscal mess.

Van
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Re: Moving states to avoid capital gains taxes

Post by Van » Mon Apr 13, 2020 3:32 pm

11% sales tax in WA, but, I think there is no state income tax.

rkhusky
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Re: Moving states to avoid capital gains taxes

Post by rkhusky » Mon Apr 13, 2020 3:33 pm

Here is an article that compares state tax burdens. Probably best to try and estimate your personal tax burden compared to the average. Washington doesn't look too bad, but neither does Oregon. Washington's sales tax is around 10% (each municipality can levee their own sales tax), so if you are a saver with a good income, that might just fit.

https://wallethub.com/edu/states-with-h ... den/20494/

BW1985
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Re: Moving states to avoid capital gains taxes

Post by BW1985 » Mon Apr 13, 2020 3:46 pm

Van wrote:
Mon Apr 13, 2020 3:32 pm
11% sales tax in WA, but, I think there is no state income tax.
Good for people who earn a lot but don't spend a lot.
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?

stan1
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Re: Moving states to avoid capital gains taxes

Post by stan1 » Mon Apr 13, 2020 4:45 pm

Nevada is popular with Californians seeking to do this, but make sure you clearly cut the ties. Sell or rent the house in California. If you are still employed make sure your employer issues you a W-2 for your new state not California.

CA has been on top of this for the better part of a century. If you've ever been to Incline Village, NV you'd understand why. Incline and adjacent areas of Nevada around Lake Tahoe are beautiful, expensive, free from California taxes, and just a few hours drive from the Bay Area.

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Watty
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Re: Moving states to avoid capital gains taxes

Post by Watty » Mon Apr 13, 2020 6:09 pm

People do this all the time when they retire like when they move to Florida for part of the year and carefully count the number of days they can stay in each state.

People that RV full time will often establish residency in a state that is tax friendly.

It was years ago but I knew someone in the military that kept residency in a tax friendly state after they were once stationed there.

As others have said you likely need professional tax advice to do it right.

I would caution you though that since it sounds like you are decades away from moving you could shoot yourself in the foot by keeping inappropriate investments for a long time in the hopes of saving taxes.

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dmcmahon
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Re: Moving states to avoid capital gains taxes

Post by dmcmahon » Mon Apr 13, 2020 6:38 pm

whodidntante wrote:
Mon Apr 13, 2020 11:05 am
Be prepared for California to claim you are resident and come after you for the taxes. It may be worth speaking to a tax attorney or doing plenty of research yourself.
+1 for the idea of talking to an attorney, especially with that level of assets.

WolfgangPauli
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Re: Moving states to avoid capital gains taxes

Post by WolfgangPauli » Mon Apr 13, 2020 7:46 pm

Count of Notre Dame wrote:
Mon Apr 13, 2020 10:58 am
Hi Everyone,

I am in my mid 30s and I have started running some investment projections now that my wife and I are starting to build up money in our taxable investment account. We currently live in California and have no plans to move, but what I started thinking about is the taxes we would have to pay on a ~$5m taxable account if we were to sell our entire portfolio while living in California to pay off our mortgage. Has anyone looked at moving to a no income tax state such as Washington in order to avoid taxes on their investment portfolio? Seems a worthwhile endeavor for a couple of years to avoid $500k or more in taxes? Would you have to sell your home in California, or at least rent it out, to prove you are no longer a resident of California?

Thanks in advance for any stories or advice you can share, thank you!
One of the large determining factors is where you work and spend all of your time. You have not mentioned how you will keep your income adn still move to Washington. If you work from home and can live anywhere then absolutely, moving to a low tax state will work. If you are "moving" to Washington but earning all your income in California then you will, at a minimum, have to pay taxes on your income as a Non Resident.
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celia
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Re: Moving states to avoid capital gains taxes

Post by celia » Mon Apr 13, 2020 9:27 pm

Count of Notre Dame wrote:
Mon Apr 13, 2020 10:58 am
We currently live in California and have no plans to move, but what I started thinking about is the taxes we would have to pay on a ~$5m taxable account if we were to sell our entire portfolio while living in California to pay off our mortgage.
Why, in heaven’s sake, would you want to sell off your entire portfolio in one tax year? Realizing all the gains in one year will certainly push you up to a higher tax bracket or two.

Instead, why not sell enough to free up about $50K to give to the mortgage company. (Adjust the amount while trying to stay in the same tax bracket.). Repeat each year until the mortgage is where you want it.

chemocean
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Re: Moving states to avoid capital gains taxes

Post by chemocean » Mon Apr 13, 2020 10:04 pm

Better move out of WA before the surviving spouse dies. The single individual exemption for WA state estate tax is only $2.2 M.

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dmcmahon
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Re: Moving states to avoid capital gains taxes

Post by dmcmahon » Mon Apr 13, 2020 11:26 pm

celia wrote:
Mon Apr 13, 2020 9:27 pm
Why, in heaven’s sake, would you want to sell off your entire portfolio in one tax year? Realizing all the gains in one year will certainly push you up to a higher tax bracket or two.
Maybe not. The LT cap gain rate is fixed above a certain level, which the poster is almost certainly above. It's 20%, plus an ACA surtax of 4%. Plus the state income tax, 9.3% or higher in California. So a better question to ask is, when will I ever face a lower LT cap gain tax rate? Answer (at the federal level): probably never? Answer (at the state level): as soon as I get out of California!

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Stinky
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Re: Moving states to avoid capital gains taxes

Post by Stinky » Tue Apr 14, 2020 8:35 am

Count of Notre Dame wrote:
Mon Apr 13, 2020 10:58 am
We currently live in California and have no plans to move, but what I started thinking about is the taxes we would have to pay on a ~$5m taxable account if we were to sell our entire portfolio while living in California to pay off our mortgage. Has anyone looked at moving to a no income tax state such as Washington in order to avoid taxes on their investment portfolio? Seems a worthwhile endeavor for a couple of years to avoid $500k or more in taxes?
Just to clarify - do you have a $5 million taxable account, or $5 million in gains in a taxable account.

If your total account is $5 million, it’s likely that your potential state tax cost is less than $500k. Capital gains taxes are assessed on the gain, not the total account value.
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UpperNwGuy
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Re: Moving states to avoid capital gains taxes

Post by UpperNwGuy » Tue Apr 14, 2020 10:36 am

Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?

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BroIceCream
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Re: Moving states to avoid capital gains taxes

Post by BroIceCream » Tue Apr 14, 2020 11:19 am

anonsdca wrote:
Mon Apr 13, 2020 12:07 pm
I did exactly what you are suggesting - but for a different reason. I did it for the "payroll" state tax break. No state income tax was a massive raise for me.
And don't forget California's taxation of all gains in an HSA.

Topic Author
Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Tue Apr 14, 2020 6:18 pm

Stinky wrote:
Tue Apr 14, 2020 8:35 am
Count of Notre Dame wrote:
Mon Apr 13, 2020 10:58 am
We currently live in California and have no plans to move, but what I started thinking about is the taxes we would have to pay on a ~$5m taxable account if we were to sell our entire portfolio while living in California to pay off our mortgage. Has anyone looked at moving to a no income tax state such as Washington in order to avoid taxes on their investment portfolio? Seems a worthwhile endeavor for a couple of years to avoid $500k or more in taxes?
Just to clarify - do you have a $5 million taxable account, or $5 million in gains in a taxable account.

If your total account is $5 million, it’s likely that your potential state tax cost is less than $500k. Capital gains taxes are assessed on the gain, not the total account value.
I am projecting $5M in gains.

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Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Tue Apr 14, 2020 6:24 pm

UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.

illumination
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Re: Moving states to avoid capital gains taxes

Post by illumination » Tue Apr 14, 2020 6:27 pm

Assuming you are doing everything in a legal manner "by the book" and moving is not a burden, it's a complete no-brainer if you are dead set on taking a huge capital gain.

George Lucas did the same thing when he sold his empire to Disney and moved to Nevada from California. Probably saved over $400 million in CA state taxes.

I would definitely have a tax attorney help coordinate it, especially if you are keeping a house in CA, I could see them being aggressive when you still have one foot in the state.

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celia
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Re: Moving states to avoid capital gains taxes

Post by celia » Tue Apr 14, 2020 6:37 pm

Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.

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Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Tue Apr 14, 2020 7:21 pm

celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.

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MP123
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Re: Moving states to avoid capital gains taxes

Post by MP123 » Tue Apr 14, 2020 7:31 pm

Count of Notre Dame wrote:
Tue Apr 14, 2020 7:21 pm
celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.
You should also consider proposition 13 tax benefits depending on how long you've owned the home. Selling and rebuying another $5M home might cost you quite a bit in property tax.

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Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Tue Apr 14, 2020 9:05 pm

MP123 wrote:
Tue Apr 14, 2020 7:31 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 7:21 pm
celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.
You should also consider proposition 13 tax benefits depending on how long you've owned the home. Selling and rebuying another $5M home might cost you quite a bit in property tax.
That's a very good consideration I need to make. My assumption was we would be downsizing our house anyway and moving closer to the ocean.

ericinvest
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Re: Moving states to avoid capital gains taxes

Post by ericinvest » Tue Apr 14, 2020 10:14 pm

I did this and left CA. As expected CA FTB audited my tax, and after responding with supporting documents they closed the case. I submitted the following docs,
1. Rental contracts for new and old places
2. Car registration in new place
3. Flight ticket and hotel receipts for the move
4. Car and boxes shipment receipts
5. Couple of months of credit card statements

I think the most important ones might be the rental/sale contract and all the receipts about the moving. If you move mid-year keep the receipts on the road to prove your moving day, and they will use it as the state tax cutoff day for your investment gains.

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Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Tue Apr 14, 2020 10:26 pm

ericinvest wrote:
Tue Apr 14, 2020 10:14 pm
I did this and left CA. As expected CA FTB audited my tax, and after responding with supporting documents they closed the case. I submitted the following docs,
1. Rental contracts for new and old places
2. Car registration in new place
3. Flight ticket and hotel receipts for the move
4. Car and boxes shipment receipts
5. Couple of months of credit card statements

I think the most important ones might be the rental/sale contract and all the receipts about the moving. If you move mid-year keep the receipts on the road to prove your moving day, and they will use it as the state tax cutoff day for your investment gains.
How long did you to wait to sell your portfolio after moving, and did you end up moving back to California?

ericinvest
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Re: Moving states to avoid capital gains taxes

Post by ericinvest » Tue Apr 14, 2020 10:46 pm

Count of Notre Dame wrote:
Tue Apr 14, 2020 10:26 pm
ericinvest wrote:
Tue Apr 14, 2020 10:14 pm
I did this and left CA. As expected CA FTB audited my tax, and after responding with supporting documents they closed the case. I submitted the following docs,
1. Rental contracts for new and old places
2. Car registration in new place
3. Flight ticket and hotel receipts for the move
4. Car and boxes shipment receipts
5. Couple of months of credit card statements

I think the most important ones might be the rental/sale contract and all the receipts about the moving. If you move mid-year keep the receipts on the road to prove your moving day, and they will use it as the state tax cutoff day for your investment gains.
How long did you to wait to sell your portfolio after moving, and did you end up moving back to California?
I sold two weeks after I moved. Haven't moved back to California. Be careful if you want to move back very soon, and they may still go after you.

MathIsMyWayr
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Re: Moving states to avoid capital gains taxes

Post by MathIsMyWayr » Tue Apr 14, 2020 11:06 pm

Count of Notre Dame wrote:
Tue Apr 14, 2020 7:21 pm
celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.
Why do you want to come back? There are many places you can call home.

Topic Author
Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Wed Apr 15, 2020 10:09 am

MathIsMyWayr wrote:
Tue Apr 14, 2020 11:06 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 7:21 pm
celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.
Why do you want to come back? There are many places you can call home.
The rest of my family lives here, and I enjoy the wine country areas of Santa Barbara, Paso and Sonoma. If my two daughters both move somewhere else (but to the same area) I would consider following them there.

BW1985
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Re: Moving states to avoid capital gains taxes

Post by BW1985 » Wed Apr 15, 2020 10:26 am

ericinvest wrote:
Tue Apr 14, 2020 10:46 pm
I sold two weeks after I moved. Haven't moved back to California. Be careful if you want to move back very soon, and they may still go after you.
+1. If you move, sell, and then move back I can see them making a case that your move was not a real move and you're still liable for CA taxes. You could end up in a court battle with the state.
Chase the good life my whole life long, look back on my life and my life gone...where did I go wrong?

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Count of Notre Dame
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Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Thu Apr 16, 2020 4:20 pm

Do you formally notify the state that you moved so that they don't automatically assume you're a non-filer since you filed a return for the previous tax year?

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MP123
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Re: Moving states to avoid capital gains taxes

Post by MP123 » Thu Apr 16, 2020 5:50 pm

Count of Notre Dame wrote:
Thu Apr 16, 2020 4:20 pm
Do you formally notify the state that you moved so that they don't automatically assume you're a non-filer since you filed a return for the previous tax year?
When I moved from CA many years ago the FTB sent me a presumptive tax bill and a demand notice two years later, all based on my Federal filings (which they have access to), even though I was no longer even a part-year resident. I was able to document the move to their satisfaction and got the matter dropped but there were some tense moments.

I'm not sure if there is a way to preempt all that but it would be nice. I sort of doubt they'd give you a "get out of jail free card" ahead of time though...

jucor
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Re: Moving states to avoid capital gains taxes

Post by jucor » Thu Apr 16, 2020 6:24 pm

I think I am missing a few things in your logic here:

1) It seems you are talking about doing this down the road some 15-20 years as you say you are in your 30s and won't do this until your daughters are independent. A lot might change in those years -- including how much you we on your home (assuming you do not have an interest-only mortgage).

2) You say you want to sell off this large as-of-yet-not-fully-realized-portfolio to be mortgage-free in CA, but in order to avoid taxes you need to sever your ties to CA, so you'd have to sell the house and move out of state. This seems self-defeating.

3) You say you want to move back to CA some time after you'd do that, as you like it and have family there. It seems to me that uprooting yourself for 5-10 years to do this and move back is odd -- I think if you do it and move back a year or two later CA will require you pay up.

MarkNYC
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Re: Moving states to avoid capital gains taxes

Post by MarkNYC » Thu Apr 16, 2020 9:40 pm

Count of Notre Dame wrote:
Thu Apr 16, 2020 4:20 pm
Do you formally notify the state that you moved so that they don't automatically assume you're a non-filer since you filed a return for the previous tax year?
No. In the year you move out of CA, instead of filing a CA Resident tax return Form 540 you would file a Nonresident or Part-Year Resident tax return Form 540NR. On Part 1 of Form CA (540NR) you must list the date you became a CA nonresident and the name of the new state of residence.

Some people with two homes who decide to change residence from one home to the the other choose 12/31 as the date of the change. This may not be advisable for two reasons: not many people actually move on New Year's Eve; and the absence of a part-year resident tax return can often leave the former resident state with the expectation of a tax return the following year, resulting in unwanted correspondence from the state.

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Re: Moving states to avoid capital gains taxes

Post by random_walker_77 » Thu Apr 16, 2020 10:07 pm

Count of Notre Dame wrote:
Tue Apr 14, 2020 7:21 pm
celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.
This had better be hypothetical, or you should burn this account and make sure your real name is never connected to this post (moderators can help to some extent). Points to add:

1) Leaving California can save you a lot of taxes, especially if you can make a similar income in a low-tax state. One of the posts pointed out 11% sales tax in WA, but parts of CA are at 9%, which isn't a huge difference. Moving to Texas has been a big win for us, but only because our salary didn't decrease, and the tax savings over time have been enormous.

2) When we left CA, we left at the end of December (and I can't remember if that meant we filed 540 or 540NR), and had our house sell a couple months later, and so filed a 540NR (non-resident) for the following year. This had the side effect of letting the FTB know our new address and know that we'd moved out of state.

3) It's good to sell the house to help show you have no intention of returning. Also, selling soon ensures you can take the 500K capital gain exclusion (for married couples) on the house. If you haven't lived in it for (3 of the last 5 years?), then you don't get to exclude gains. You do lose Prop 13 benefits though

4) A lot of it seems to revolve around intent. That's why you need to not only register your vehicles and register to vote in your new state, but you also need establish community connections: new doctor/dentist/etc. Intent can be hard for the FTB to prove. These actions are all to help establish that you have no intent to return to California (but I suppose you could always change your mind years down the road).

see:
https://www.withersworldwide.com/en-gb/ ... t-of-state
https://www.ftb.ca.gov/forms/2019/2019- ... cation.pdf "Guidelines for Determining Resident Status"

While it can be hard for the FTB to prove you always intended to move back after n years, leaving a paper trail could be devastating. Do *not* tell friends and neighbors that you're moving for tax reasons and are planning to come back someday. Do not leave a paper trail showing that you intend to move back to California some day. This thread is probably not good for your case if your name was somehow connected to this thread. Perhaps clarify that this is hypothetical, and never use this account again... (please don't go deleting all of your posts though -- that just ruins things for the rest of us. You can judiciously edit your posts, and request moderator assistance to edit quoted replies).

random_walker_77
Posts: 981
Joined: Tue May 21, 2013 8:49 pm

Re: Moving states to avoid capital gains taxes

Post by random_walker_77 » Thu Apr 16, 2020 10:14 pm

MarkNYC wrote:
Thu Apr 16, 2020 9:40 pm
Count of Notre Dame wrote:
Thu Apr 16, 2020 4:20 pm
Do you formally notify the state that you moved so that they don't automatically assume you're a non-filer since you filed a return for the previous tax year?
No. In the year you move out of CA, instead of filing a CA Resident tax return Form 540 you would file a Nonresident or Part-Year Resident tax return Form 540NR. On Part 1 of Form CA (540NR) you must list the date you became a CA nonresident and the name of the new state of residence.

Some people with two homes who decide to change residence from one home to the the other choose 12/31 as the date of the change. This may not be advisable for two reasons: not many people actually move on New Year's Eve; and the absence of a part-year resident tax return can often leave the former resident state with the expectation of a tax return the following year, resulting in unwanted correspondence from the state.
Yes, exactly. We packed up and left just before xmas eve, spent xmas in a different state, and then flew to Texas a couple days after Christmas in order to meet our car. This was a long time ago, and I guess I filed 540NR for that last year (basically a resident all year) and then 540NR for the following year in order to report a house sale that took place shortly after we moved out, in the new year.

MarkNYC
Posts: 1758
Joined: Mon May 05, 2008 7:58 pm

Re: Moving states to avoid capital gains taxes

Post by MarkNYC » Thu Apr 16, 2020 10:34 pm

MP123 wrote:
Thu Apr 16, 2020 5:50 pm
When I moved from CA many years ago the FTB sent me a presumptive tax bill and a demand notice two years later, all based on my Federal filings (which they have access to), even though I was no longer even a part-year resident. I was able to document the move to their satisfaction and got the matter dropped but there were some tense moments.
Here is a real anecdote that shows how aggressive and unreasonable the CA Franchise Tax Board can be.

A few years back, a taxpayer (with 7-figure income) who for 30 years had lived in NY City (with nonworking spouse) and worked in NY City for a Florida-based company, received a presumptive tax bill from CA for not filing a tax return 2 years earlier. The taxpayer never lived in CA, never worked in CA, never owned property in CA and never had an ownership interest in a company that did business in CA. So what caused the inquiry? The taxpayer had received a consolidated 1099 from a money management company whose corporate office and mailing address was in CA. That was all. It took some time and effort to make CA go away. It might not surprise some people to learn that the CA FTB has an office in NY.

Topic Author
Count of Notre Dame
Posts: 191
Joined: Fri Oct 11, 2013 1:08 pm

Re: Moving states to avoid capital gains taxes

Post by Count of Notre Dame » Fri Apr 17, 2020 9:29 am

random_walker_77 wrote:
Thu Apr 16, 2020 10:07 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 7:21 pm
celia wrote:
Tue Apr 14, 2020 6:37 pm
Count of Notre Dame wrote:
Tue Apr 14, 2020 6:24 pm
UpperNwGuy wrote:
Tue Apr 14, 2020 10:36 am
Seems to me that selling investments to pay off the mortgage early is not a good idea. Why do you want to do that? For the psychological benefit?
It will enable me to quit my job and my wife to go part time. The plan would be to tap enough to bridge the gap from early retirement to the age we could utilize our 401k savings.
So if you will quit your job(s) to move to another state, why not make a clean break and sell the house too? You most likely can buy another one in another state for less than $5M.
I would consider selling and renting in the other state for 1-2 years although I ultimately want to be retired in California.
This had better be hypothetical, or you should burn this account and make sure your real name is never connected to this post (moderators can help to some extent). Points to add:

1) Leaving California can save you a lot of taxes, especially if you can make a similar income in a low-tax state. One of the posts pointed out 11% sales tax in WA, but parts of CA are at 9%, which isn't a huge difference. Moving to Texas has been a big win for us, but only because our salary didn't decrease, and the tax savings over time have been enormous.

2) When we left CA, we left at the end of December (and I can't remember if that meant we filed 540 or 540NR), and had our house sell a couple months later, and so filed a 540NR (non-resident) for the following year. This had the side effect of letting the FTB know our new address and know that we'd moved out of state.

3) It's good to sell the house to help show you have no intention of returning. Also, selling soon ensures you can take the 500K capital gain exclusion (for married couples) on the house. If you haven't lived in it for (3 of the last 5 years?), then you don't get to exclude gains. You do lose Prop 13 benefits though

4) A lot of it seems to revolve around intent. That's why you need to not only register your vehicles and register to vote in your new state, but you also need establish community connections: new doctor/dentist/etc. Intent can be hard for the FTB to prove. These actions are all to help establish that you have no intent to return to California (but I suppose you could always change your mind years down the road).

see:
https://www.withersworldwide.com/en-gb/ ... t-of-state
https://www.ftb.ca.gov/forms/2019/2019- ... cation.pdf "Guidelines for Determining Resident Status"

While it can be hard for the FTB to prove you always intended to move back after n years, leaving a paper trail could be devastating. Do *not* tell friends and neighbors that you're moving for tax reasons and are planning to come back someday. Do not leave a paper trail showing that you intend to move back to California some day. This thread is probably not good for your case if your name was somehow connected to this thread. Perhaps clarify that this is hypothetical, and never use this account again... (please don't go deleting all of your posts though -- that just ruins things for the rest of us. You can judiciously edit your posts, and request moderator assistance to edit quoted replies).
Absolutely a hypothetical. However my wife would work part time in the state where we would move to so the move would be ultimately work related.

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