The Straw That Broke This Camel’s Back…
People can pick up and move homes for many good reasons. Sometimes it’s a job, sometimes to be closer to loved ones, and occasionally it’s to retire to cheaper location.
This process of moving to ensure a wonderful retirement is commonly known as geo-arbitrage. It’s very common for retirees to move, and something the Tako family has been considering for quite awhile now.
Along with a cheaper cost of living, we’ve been looking for a nice, safe, quiet place to finish raising our kids.
It’s been a slow process, and we’ve been in no rush to move — Washington has been a pretty great state to live, and it’s fairly affordable when compared to places like California, Hawaii, or New York.
However, one of the greatest financial advantages of living in Washington State could soon be disappearing…
A Tax On Washington
Until recently, Washington State enjoyed the status of being a “no income tax” state. To pay for all the necessary services we’ve come to depend on as part of modern society, the state of Washington has had high sales-taxes (around 10%) and higher than average property taxes (around 1% of assessed property value).
This is very similar to other “no income tax” states like Alaska, Texas, Wyoming, Nevada, Florida, Tennessee, New Hampshire, and South Dakota.
It’s a taxation method that’s worked fine for decades in Washington, and all those other income tax free states. Washington has been a great state to live, work, save, and invest in. There’s plenty of jobs, and we have one of the highest minimum wages in the country at $13.50/hr!
Unfortunately, due to a upcoming change in state law, this income-tax free status may be ending very soon.
Our state legislature has decided (in all their great wisdom) to enact a 7% capital gains tax on capital assets — like stocks, and bonds. This tax would only apply to individuals with capital gains over a value of $250k in a given year. Real estate would be exempt, as would the sale of sole proprietorships.
You can read the current version of the bill here, as well as track the bill on the Washington State Legislature website. The bill hasn’t completely passed yet, but it’s predicted to in the next few weeks.
The idea behind the bill is that “wealthy” people should to be taxed more to deal with growing wealth inequality. In other words, to help fix the wealth gap between the “haves” and the “have-nots”.
In theory this is a fine idea — Wealthy individuals earning many many times their level of spending should be able to help out the society that made them ultra wealthy in the first place.
That’s a great theory… but what if this capital gains tax actually impacted middle-class retired people? Or those soon to be retired?
Is It Really A Tax On The “Wealthy”?
After reading the bill, it didn’t take me long to realize that my own family would fall subject to this capital gains tax very soon. If the S&P 500 earns an “average” long-term return of 7%, it would take a mere $3.5 million dollars before a family became subject to an annual capital gains tax.
That’s right where the Tako family is today! In a good stock market year, we can easily see gains that exceed $250k. (Not every year mind you, but we’re close). Normally we don’t harvest our capital gains every year. Instead, we try to live-off our dividends (if possible) and let most of our assets keep growing. Thankfully, dividends are not subject to this capital gains tax.
Last year we spent a $41,891 of our dividend income of $60,737. It was a COVID-19 year, so our spending was a bit lower than normal. We typically spend around $55,000 dollars a year.
This is hardly “wealthy family” territory! We spend less than the median American family ($63,000 annually according to the Census Bureau).
We’re NOT fancy billionaires driving luxury European sports-cars, and flying around the world on private jets. We’re a simple family who lives in a 2,500 square foot home with two used cars (worth less than $10,000 each). In a non-COVD year, we feel privileged if we can take one decent-sized family vacation per year.
So are we the definition of the ultra-wealthy? A middle-class family just trying to reach financial independence?
Hardly! 2019 and 2020 were definitely good years for the stock market. We saw unrealized capital gains that we would be subject to this capital gains tax if we ever decided to harvested those gains.
Once this new law passes, we could even accidentally become subject to 7% capital gains just by shuffling our assets around (a process sometimes called portfolio balancing).
A Tale Of Three Earners
Imagine for a moment, you have 3 individuals who live in Washington State — A tech executive, a real estate mogul, and a hard-working saver.
Each of these individuals exists at a different level of the wealth spectrum. One is extremely wealthy. Another is what I would term “upper-middle-class”, and one is merely middle class.
All three individuals derive their income through different methods.
(Yes, I know this sounds like a bad joke, but bear with me — It’s no joke!)
Our tech executive earns an annual salary of $400,000/year from his job at the tech firm where he works. In addition, he earns an annual bonus of $200,000 and annual stock awards of $300,000 from this tech company. Over the years he’s made millions from the tech firm where he works, and he has many millions in unrealized capital gains from those stock awards. His net worth is over $10 million dollars. By most measures, he’s a member of the 1% and extremely wealthy.
Since Mr. Tech Executive earns most of his income as a salary he won’t be subject to taxation in Washington State. And, since he intends to retire out of state, he can simply defer selling stock awards until he’s established out-of-state residence.
Now, we move on to the real estate mogul. Mr. Real Estate Mogul may have started out earning a good salary from a law firm, but he saved his pennies and invested them into real estate. He doesn’t work at the law firm anymore. Instead, he now manages his real estate portfolio, deriving his income from real estate assets.
Over the years he’s built up quite the portfolio of rental properties and office buildings. He now collects an annual income of $250,000 after expenses and mortgages are paid. Some years he sells property and realizes a large capital gain that exceeds $250,000. Since this capital gain is derived from real estate, it’s exempt from the new capital gains tax. The real estate mogul can happily spend (or reinvest) those gains without taxation in Washington.
And finally, we consider Mr. Saver. Over the years Mr. Saver worked numerous middle-income jobs — nearly all of them earning less than $100,000 a year. He (and his family) lived frugally, only spending what they needed. After a couple of decades they managed to save and invest a couple million dollars, intending to reach financial independence (and eventually “retire”).
Since the stock market has been having some great years, Mr. Saver saw his invested savings grow to roughly $3.5 million dollars. That’s roughly $1.5 million in capital gains, and he now considers himself financially independent (aka “ready for retirement” in traditional parlance).
There’s a problem however — Unlike those other Washington State earners mentioned earlier, Mr. Saver would be subject to the new capital gains tax in Washington state. This could endanger his retirement because that $1.5 million is subject to the 7% capital gains tax as soon as he sells!
Would The Real Mr. Saver Please Stand Up?
If you haven’t guessed by now, I’m actually “Mr. Saver” in the story above, and this new state law brings on a whole new dimension to living, earning, and retiring in Washington state.
Honestly, I’m outraged that a simple middle-class person like myself would be subject to this new taxation. Meanwhile, extremely wealthy business executives and real estate moguls can easily avoid taxation just by virtue of how they earn an income.
I seriously doubt most retirees with a decent retirement savings will want to remain in Washington State after this new law gets enacted. To make matters worse, the new capital gains law has no provision for inflation. Meaning, more and more middle-class savers like myself will eventually be subject to this capital gains taxation as inflation works its magic.
(Update: It seems like the bill *does* have a provision to adjust for inflation. I just missed it.)
Hell, even Jeff Bezos recently stepped down as CEO of Amazon. As you probably know, Amazon is headquartered in Seattle Washington. As CEO, he was a resident of Washington. That’s all done now. Stepping down means Bezos is probably changing his residence to another state. As chairman of Amazon, he’ll only need to come back for board meetings.
(Let’s be honest — If you were the richest man on the planet, you would probably try to avoid taxation too.)
Say goodbye to Jeff Bezo’s billions Washington State! And the hundreds of thousands of dollars they might have realized from my own (relatively) pathetic retirement portfolio.
Final Thoughts
That’s right, we’re moving! In the past it seemed like geo-arbitrage was probably a good idea to maximize our retirement dollars, but now it seems like a necessity.
Why? We’re not actually that wealthy, but Washington State seems to think we are. In order to maximize our retirement years we have to be careful. We have a mere $3.5 million in capital assets, and a few hundred thousand in home equity, along with some emergency cash. All that hard-earned money can disappear very quickly if we’re not careful about where it goes, how it’s taxed, and how much we spend.
During all of our years saving and investing, we never planned to pay an extra 7% of our wealth in taxes.
We still like Washington state, (and even have family here) but our retirement now seems at risk if this new law passes. If it does, we’ll move to a no-tax state like Texas, Florida, or Nevada.
While I don’t disagree with the concept of having ultra wealthy people pay-up, it’s the fact that it doesn’t actually tax them that bothers me. Instead, it’s middle class savers like myself that get caught with the bill just because of how we derive our income. This seems wrong to me.
It’s the final straw that broke this camel’s back. Unfortunately, I have no political power and there’s nothing I can do to change this. We can simply put-up with it, or leave. Leaving seems like the better option to me.
My only question now is, “Where shall we move?”
Do you agree or disagree with this new tax on capital gains? Is it fair? I’d love to hear your thoughts in the comments!
[Image Credit: Flickr]
Tax schemes always have unexpected consequences and the clever will find workarounds. It seems a flat tax with few or no deductions…..maybe one for charitable contributions and mortgage? ….would be fairest. Let all income then be subject to all taxes Medicare, social security, etc.
We are just retiring in Pennsylvania and will likely stay here for now, but I do have my eyes on what is going on with taxes
This post should be sent to the Washington State Legislature! I’m not sure if they’re just ignorant of unintended consequences but this bill seems a far cry from ‘taxing the billionaires’. I also feel the recent high profile people and businesses moving out of CA does not get covered enough in the news. As the underlining issues are just getting worse unfortunately. I except those three new states you mentioned to get even more popular in the future.
Thanks for highlighting this issue. I will need to accelerate my plans to move out then.
Gocurrycracker has great advice on taxes. This law has not passed yet. You have more power than you think. Go change laws.
You seem wealthy to me. And congrats. You’re smart and I love your posts
We’re doing OK, but we’re not really wealthy. I’m friends with some of the wealthy 1% people that live in Washington. Their level of wealth is on a whole other scale. I’m serious! They’re so far ahead of the rest of us, it’s not even funny.
Great discussion. Mind the school system(s) where you are and where you’re going, too.
Unless homeschooling, then it doesn’t really matter.
Fred Atwater
Henderson NV
Tax is on realized gains over 250k?
So would only effect you when you rebalance?
That’s a bummer. All of the intricacies of local tax rules do put a drag on living decisions, but when they change the rules mid-game it’s a real problem. The good news is you have some control, and perhaps it’ll just accelerate a decision you were already leaning towards. Nevada or Texas get my vote!
I don’t agree in general with the tax the rich model usually because it does not solve the governments revenue issue and is more of a way to please the voters and get elected. In your case with how you plan your retirement and spending even with rebalancing are you likely to see $250K in capital gains most years? And is it on the gain over $250K only or once you hit the threshold the whole gain is taxed?
It sounds like you could be going through the big change of moving to avoid what may not amount to a large amount in your case, in the near term. So depending on how it is calculated maybe you should wait and see before making such a big change?
The high income individual gets taxed extensively on federal income taxes and probably is dumping tons of money into the state economy living a high consumption lifestyle. They don’t want to run off that kind of person. Moreover given their position, they probably know or have friends who know someone on the legislature so doubly, they want to handle this kind of person with white gloves.
The real estate mogul provides value and service to the community by providing clean, efficient, and managed places for people to live and / or work depending on whether invested in commercial or residential real estate. Regardless of this “cancel rent” and anti-landlord sentiment, this type of individual adds significant societal value by providing these services by keeping the homelessness down. A “smart” legislature avoids upsetting this type of person. He / she also shoulders that enormous property tax cost across many assets and has the “joy” of dealing with tenants. So in affect, this person is paying a significant tax already.
You on the other hand are very smart, have built up a portfolio of fantastic assets that for the most part is enjoying little taxes (even from federal since their mostly dividends). You’re also doing it right and enjoying parks, libraries, and other low cost to yourself public resources. A great thing but recognize the smart Mr. Savers of the world like yourself may be using a lot of public resources, more than your paying for, or that the State can afford. Additionally, you don’t already pay the a large tax so upsetting and losing you may not seem on the surface to be a loss to the State. Additionally, you’ve lived in a State’s society with a setup that has allowed you to be $2 million short of the top 1% in America—all without a high income. Some may argue you, like your argument within your post about ultra-wealthy, should pay for more in the society that allowed you to build your wealth.
For less perspective and my thoughts. I don’t live on WA and not spun up on its local issues but this new tax sounds like some grade A BS. It’s shortsighted vote stoking legislation that will make some model citizens like yourself leave. There may be a domino effect that makes others leave (model citizens like to be around other model citizens) and the process become self fulfilling until your real estate mogul sells everything and leaves as “people just aren’t the same anymore” and the executive’s company throws in the towel and leaves as they can’t find model citizens to work for it in WA. The 7% seems excessive. $250k threshold seems too low. This tax sounds like a half-cocked scheme from people who don’t understand capital markets and how wealth was generated and created amongst individuals. Texas, Florida, and Nevada will welcome you for sure. Best of luck with moving, always a pain.
Thank you for this post. I am currently in Portland taking care of a sick family member but was conisdering moving my base to Vancouver d/t the taxes. I think we will be considering Florida.
Bummer about the tax change.
But that chart does not actually show new money created last year : )
It’s just a change in the accounting rules (classification of M1 & M2), which was made to help people access their savings during COVID:
The Fed Isn’t Printing As Much Money As You Think (Morgan Housel)
Yeah, I’m aware of the accounting change, thanks! I’ll swap it out for the m2 graph.
Based on what I’ve read online this tax applies to REALiZED capital gains. It’s actually more generous compared to the initial tax of 9% that was proposed by the governor for realized capital gains on over 25k for single filers and 50k for joint filers.
Yes, that’s correct realized capital gains, based upon your federal tax return… which if I ever change my stock positions will realize significant capital gains.
Most people intend to retire, regularly selling a little stock. I don’t think they realize this $250k amount will creep up on them very soon.
That stinks for sure, but if you’re serious about moving, I think that’s a smart thing to do. Putting your money where your mouth is, in this case, can be important to let the state know you’re not happy. I’m sure there are not a ton of people that will do the same just because it might be a lot more complex for working families. However, a tick downward in population is never something any state wants.
Regardless, I hope you find a place you love! I know we’ve talked about a couple of places you were considering so I hope it works out well for you!
If I’m reading it correctly, the tax is on any realized gains over $250k. So, if you realize $300k in cap gains in a year, then you pay 7% tax on $50k, not on the whole $300k, right?
The bill is difficult to parse, but it sounds like it’ll work that way. That may not sound like a lot right now, but give it 10 years of inflation.
This seems like a fairly insignificant tax that will have a small effect on people that can afford it. Tax on capital gains in Japan is 20.315%, from the first dollar.
Significance is relative. There’s a reason I’m not attempting to retire in Japan 😉
30% in Finland and (34% for over 30000€) for capital gains (inc. dividends, rental income ect.).
Really can’t sympathize so much with anything under 10%. 😉
Please realize this 7% is already on top of the 20ish percent we pay in federal taxes, as well as numerous state taxes on things like property taxes, gas taxes(some of the highest in the united states), annual car registration taxes, and so forth.
I shouldn’t need to remind you that, unlike Finland, we do no enjoy a free college education here in the United States.
I am a WA resident and never plan on “realizing” 250k in capital gains. Your article seems to gloss over that which makes the whole problem go away. Yes, you will need to think twice before making a huge rebalance move. I worry more about how this income tax will evolve to get more of us.
Give it 10 years and you’ll be surprised how many people are bumping into that 250k. Depending upon how you portfolio is structured you may be bumping into it sooner than you think.
Most tech workers in the Seattle area are already making over $200k/yr. By the time they’re ready to retire this is going to be a real issue for them. I’m just a poor plebian compared to them.
I’m still not seeing how this would affect you. You’d have to sell a huge amount of stock in one year to hit the limit, which you never do because you live frugally.
Maybe I’m missing something?
Our spending level does not drive our investment decisions. For example, if I have a large capital gain in a stock like DFS I might need to sell if the business takes a wrong turn. On that stock alone I would be into taxable territory.
Thank you so much for bringing this information to light! Without living in WA, I would never have known about this. The search for the perfect state to retire to is very complicated. I’ve been in love with the idea of living in WA to avoid state income tax, but close enough to OR to avoid sales tax, haha! Now I may have to rethink this!
Be grateful you’re not in California. The idiots in charge are thinking about a bill to tax you if you made your money in California then move….they think they can still charge you AFTER you’ve moved out of the state. Their thinking is “you made your money in California, therefore you OWE us for 10 years of taxes if you move out”.
That is absolutely ridiculous.
Hopefully that tax will not pass. 7% is steep. If you do consider moving I would look closely at the total tax burden by state. Some surprises for me on this list. Texas, Arizona ,Idaho, and North Dakota all have higher total tax burdens than my state of Virginia clocking in way down at number 38 overall. https://wallethub.com/edu/states-with-highest-lowest-tax-burden/20494
Thanks Brad!
New taxes always suck. We have 20% capital gains tax here, no public services (everything worth using is private/inept government, so taxes are mostly a waste), and recently they made our marginal tax rate 45% so income tax is super high. Unfortunately due to corruption we actually have to pay twice (once for an inept police service/public school/state hospital/no social services with high taxes which are all terrible services/non-existent , you pay a second time for private school/medical/retirement funds for something you should have received partly from your tax). It’s the reason so many have left our country. Sadly if you try to move you have to pay exit tax which is basically just realizing all capital gains to date and paying the 20%.
Now that that is out of the way, I agree that you should move to where you’re treated best, if you feel that you can gain something better, like good weather, without requiring a capital gains tax and there isn’t any reason that you’d need to stay and just suck it up. Unless of course you love where you live/house/lots of family and friends close by, then it becomes a more difficult decision.
In case you’re wondering why we never moved from such a high tax area to somewhere/anywhere in the world with a better tax regime, it’s because of family. Family is the only reason why we’re still here, and without them we would have left long ago. If you haven’t got any real roots to where you are located, then I agree that finding a better tax regime is the way to go!
I feel like no matter what tax provisions are tried locally or nationally folks will always find a way to skirt around the system. It’s like plugging a leak on a boat only spraying another leak elsewhere. I can only hope that at some point we find the right balance with taxation, but the problem seems like a impossible one to tackle.
From the comments, I see that the tax will be on realized gains. That’s not too bad if they increase the cap with inflation. Normal savers usually don’t realized that much capital gains in one year. IMO, 250k is a reasonable cap. But I guess it really depends on your circumstance. Most of my positions are under $30,000.
Nevada? Lake Tahoe is pretty nice.
Give ’em an inch and they’ll take a mile. If they succeed with this one more laws might be coming as the politicians will get drunk on spending other peoples money. That’s generally how these things work
Looks like WA State could lose a lot of retired “wealthy saver folks” who also love to spend money… to other states that won’t gouge them for taxes.
Always good to be on the ball about what is happening.
Don´t worry, all good in the US.
What about these numbers:
19% sales tax
Income tax (incl. social security + health care to be fair) typical ~45% as a single
Capital gains and dividends tax : 26% , no long term invest exclusions anymore.
Among the highest energy prices in the world
Double & triple taxation on gasoline (Sales tax on CO2 tax on” Greta” tax on base price ). (Compounding is the 8th world wonder 🙂 )
More or less any product is ~20% more expensive in Euro compared to US$ , elecronics, jeans, T Shirts music , software…
Really the only advantage is that we don´t have these hilarious health care cost and better job security compared to the US. But all that security costs a fortune.
Welcome to Germany 🙂
So there is the 4% rule for 95% of the countries in the world and the 2% rule for Germany, the other half is for tax & crap 🙂
I’m guessing retiree’s don’t stick around Germany either. 😉
I don’t think an income tax is fair in the least. I am so fortunate to live in a no income tax state yet the economy is BOOMING. The state is doing something right in the business aspect, which is really great. I can’t imagine having to pay for income tax, that would be ridiculous.
Though I do pay a higher rent versus a state with no property taxes ($640 vs $1,000), it is totally worth it to me to not pay any income taxes. There is no gap on the incentive to earn as much money as I can while there is an incentive to cut down my rent costs as much as I can. That’s a true “you have a choice to do what you want” model.
Mr. Tako: I, too, live in Washington state; specifically, Edmonds – I think just South of you. I’ve also been concerned about this upcoming bill. I retired three years ago and watch my finances very closely. The current situation is that income is prohibited from being taxed by the state due to the state constitution. Capital gains are generally classified as taxable income by most states and the IRS, but in most cases, are taxed at a lower rate. This bill, if passed, will surely be litigated. The state constitution will have to be amended in order for this bill to be implemented successfully.
I’m not worried yet……..!! Let’s see what happens.
I’m curious what is the most you have had in realized capital gains in a prior year? It seems like you would be trying to minimize this for the federal tax costs as well. I imagine this post will generate multiple follow up articles and I’m excited to see where the conversation goes (it feels a bit like the tax tail wagging the dog to me. Or an excuse to move when that is really what you want to do, and there is nothing wrong with that, though Washington is a pretty great all-around state, IMO).
It seems like through the comments a number of additions/clarifications would be helpful to walk through. Plus, as a number of other comments have stated, this currently still has to get through the House (though in the past the Senate has been the stumbling block for this type of legislation). We’ll likely know more next week when the House or Senate budget is released. I’m also curious to see how you weigh educational quality in to your moving equations (considering half of the Washington state budget is dedicated to funding education). Obviously you do a lot to supplement the formal educational process but I imagine school quality will play a large role in any move, at least in the near term.
While this tax is bad, imagine if they start taxing unrealized taxable gains at the federal level, as some in power have called for. How many would leave the US?
That would be bad beyond belief. It turns long-term investing on its head, into a one-year gamble. We need less short-term gambling. Not more.
I think the definition of wealth is relative. I would certainly consider someone with $3.5 million in net worth to be wealthy. Yes, I live in a LCOL area, but even aside from that I still think it would apply. In some of your responses, I see you comparing yourself to some very high earners in the area near where you live. Yes, compared to them you have less. But, I think you also have to think about the number of people who have less than you in order to really make a judgement on your standing. I found the following article to be interesting. It is certainly a cool topic to think about, especially now that so many laws and cut-offs are being changed and edited. Where should these lines be drawn? Thank you for your article, it really made me think (as well as the rest of your blog, I really enjoy it). https://money.usnews.com/money/personal-finance/family-finance/articles/are-you-rich-how-the-wealthy-are-defined
Well, there’s certainly some truth to “wealth is relative”. Let me put it this way then: Relative to every person I know who lives and works in this same HCOL area, I’m the poorest person I know by many measures.
As a fellow WA State resident, I will stick around for a while. The $250k cap is for realized gains only and I don’t intend to have that much income anytime soon.
But we will definitely monitor the situation and pack our bags if things get worse. The problem with taxes on the rich is that they never seem to generate what politicians planned for initially, so don’t be surprised if this is just the beginning. Eventually, the tax base will widen and will eventually hit the middle-class. And the multimillionaire FIRE folks hiding behind that facade…
What an awful development. Of course the problem is that on paper everyone will consider you wealthy, so you are open game as far as voters/politicians are concerned.
Have you come across any locations you are thinking of that mix the right balance of low tax, nice climate, tolerant/sophisticated culture? I am trying to figure out and have been thinking out about where to go, including potentially globally (currently expat but my homes are in NY).
Yes it could be a problem adjusting for a single large investment that needs attention. However, maybe it should be regarded as a symptom of insufficient diversification. I’m relying on total return rather than dividends and therefore would avoid this issue by virtue of using index funds. I live in California and might move for other reasons.
I read your blog regularly and really appreciate your point of view and careful analyses.
welcome to singapore.
– no capital gains tax.
– worldwide capital of reits ranging 4-9% dividends (some of the US based reits are on the higher end of this yield range).
– regional financial market leader.
– one of the safest countries in the world with low crime and no guns.
– relatively low cost of living (dont believe crazy rich asian, basically those are the real estate moguls you mentioned), but housing could be arguable depending on your demands.
– english speaking population, cosmopolitan and rich culture.
– central to many countries with great beaches and cheap vacations in the region.
– for your family too, only a 6hr flight to japan.
i could go on, but you could probably find lots of youtube videos by foreigners living in singapore for an unbiased take.
Don’t be so confident yet… You will never know one day the pay and pay government decides to enact this and it’s gonna be a nightmare for many middle-class people in SG active in the stock market. Sigh…
Good article, thank you for articulating them so well.
I hope of all the good things that can be enacted, our government over here does not pick up this idea and turn it into something real. And that will be a nightmare for many middle-class people.
I agree with everything in the article except that you fall into the same error as your legislators. You consider taxing others who have more than you. I find it just as immoral to tax those below you as those above you. Participating in the stock market already causes you to contribute different taxes to society. Here in Europe it is a real madness, except for the English who were smart and moved away from the bureaucratic dinosaur. I’m sure you’ll do great moving to another state, my full support.
Compared to the average American you are very wealthy. But this doesn’t mean I agree with this tax. It looks like WA looked to the federal Net Investment Tax law for this one. Similar threshold, similar exceptions. Moving won’t get you away from it entirely. As a CPA (who should be working on taxes but hey that’s not nearly as fun as reading blog posts!), I have to think there are ways to structure one’s assets to avoid the federal and this new proposed WA tax. I’ll research it.
This news bums me out, as WA is on my list of places to potentially move to.
I love Houston. Very ethnically and nationality wise diverse. My 4 bed 2 bath 2 garage home on the north side is worth about 150k at market. It is more expensive inside the “loop” but bargains abound in the suburbs. Would love to have the Tako family nearby.
It seems like the easiest thing to do it shift more of your money into real estate. It would be a good diversification move with the stock market at historic highs, and if you don’t want the management headaches look into triple net leases.
That’s one possibility.
I don’t know if there’s “fair vs not fair” for capital gains tax, since everyone’s situation is a bit different.
For example, I pay California taxes and one would say yep, that’s most definitely “not fair” lol. It’s the worst state if you like money and it’s the best state to watch your hard work get incinerated by the tax man.
But at the same time, I make an income in California based on my Silicon Valley job, and I’d argue the same amount of pre-tax money can’t be made elsewhere as easily. Though I could move to Washington and get a reduced income tax, California has better weather and just better technology opportunities in general. So for my thinking: I feel like the state tax is just based on the opportunities / locational advantages. And if one can’t make use of those opportunities / locational advantages (i.e. if you are not in the tech industry but living in the Silicon Valley), then moving is definitely the best move because otherwise it’s just burning money without the upside of exploiting the location.
Likewise for my situation: if I ever come close to replacing my W-2 income with some entrepreneurial activity or dividend activity, I’m never working in California again. There’d be no point, and there’s nothing to justify the extra state taxes I’d pay. I’d move elsewhere ASAP.
And if I had to move, my 2 picks are Texas and/or Nevada for now (but I haven’t looked into it too much yet so I’m not sure if those choices are any good or not from both a financial and just a lifestyle perspective).