Across the country, Americans have been keeping a careful eye on taxes lately. The Federal Reserve paused their rate hikes last month but another increase is expected in July. So it's no wonder that Americans might be considering moving to a different state altogether to relieve their financial woes.
Moving between states has been especially popular for the last few years, even without rate hikes. Americans have been seeking not just more cash in their pockets, but also a better lifestyle since the pandemic. In 2022 alone, the Census Bureau found that 26 states saw a large influx of Americans migrating to their region. Meanwhile, the remaining 24 states saw higher numbers of those leaving it. When you zoom in, the a recent report by the Internal Revenue Service (IRS) found that Americans are making large moves from historically higher-taxed states such as California and New York.
But is it really worth the move?
What is a capital gains tax?
First off, let's go over the basics, shall we? Investors are required to pay capital gains taxes on the profits they earn from selling investments or assets. Depending on their filing status and income, the federal government levies long-term capital gains at rates of 0%, 15%, or 20%. Short-term capital gains, on the other hand, are taxed as regular income.
Additionally, certain states may also impose taxes on capital gains. The state with the highest tax on capital gains is California, with a rate up to 13.3%!
But here's the thing. It might seem that this won't apply to Americans if they're not considering selling a home or car, or other major asset. However, consider all your assets. A sale of any kind that brings in a large amount of profit would certainly be taxed. That can be incredibly worrisome, as Americans these days are looking to add cash to their pockets, portfolios, and financial goals. Suddenly, that nest egg you were hoping to achieve by selling your home and downsizing is being taxed at 13%. So now, you're stuck with far less than you had originally planned.
It's not just about capital gains tax
Before we get into the list of eight states with no capital gains tax, it's important to note that this is just one tax you'll have to deal with. States may not have capital gains taxes, but have higher income taxes that take into account capital gains. There are also property taxes to consider, sales taxes, and even the “pink tax" which is used on feminine products in some states. There are even states with higher estate taxes on death if you're planning to settle down until your final days!
Then there are other costs to consider before making any type of large move. Moving costs money, so if your goal is to save money on capital gains, remember that it's still going to cost you in the short-term to move locations. So unless you have a high paying job lined up, with the potential to have moving expenses covered, it might be better to stay put. Furthermore, there will certainly be a new cost of living to take into consideration. Therefore, make sure to meet with a financial advisor before making any big decisions.
The states offering no capital gains tax
Now we come to the main part of this story. The states Americans can move to that offer absolutely no capital gains tax are Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, and Wyoming. But again, there are other points to consider besides the fact that these states don't have a capital gains tax. Here, let's look at what other taxes Americans may be met with when they move to these states.
| State | Income Tax | Property Tax | Estate Tax | Salary | Cost of Living Index |
| Alaska | N/A | 1.17% | N/A | $39,360 | 127.1 |
| Florida | N/A | 0.98% | N/A | $34,329 | 100.3 |
| New Hampshire | 4% | 1.77% | N/A | $40,562 | 109.9 |
| Nevada | N/A | 0.48% | N/A | $41,614 | 106.3 |
| South Dakota | N/A | 1.08% | N/A | $38,350 | 101 |
| Tennessee | N/A | 0.56% | N/A | $36,723 | 89 |
| Texas | N/A | N/A | N/A | $33,600 | 92.1 |
| Wyoming | N/A | 0.55% | N/A | $41,197 | 94.3 |
As you can see, there are multiple factors at play here. Based on information collected from the World Population Review, Tax Foundation and ZipRecruiter, just because there isn't one tax doesn't mean there aren't others. Furthermore, you might also end up paying more for your cost of living, compared to the rest of the country. So make sure all of these aspects are taken into consideration before packing up your belongings and moving up and out. That being said, if you really want to get around taxes, it looks like while everything is bigger in Texas, taxes aren't one of them.
On the date of publication, Amy Legate-Wolfe did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
