Unless you filed an extension for federal income taxes with IRS, tax season is done for the next year – correct? Not necessarily so, as just like the economy and real estate markets, things change. As usual, I invoke the TINSTAANREM axiom — There Is No Such Thing As A National Real Estate Market or a National Economy. The same is true regarding taxes. Taxes alter over time (consider the new income tax schedules and regulations we just filed under), change with our respective incomes and allowable deductions, and also from location to location. Where we live makes a difference in tax liabilities on a state and local basis.
The cost to relocate is not just a function of distance moved, but also other unique variables. An interstate move, on average, costs an estimated five times more than just changing address in a local market. Moving costs are pretty straight forward to estimate. These expenses, however, may be just a portion of the true cost of relocating after considering changes in the amount of state and local taxes. Not considered at all are the costs in selling or buying a new home or deposits related to housing rentals.
Depending on where the move is taking place from and to can impact local and state tax obligations by up to $7,760 per year according to a 2019 study by HireAHelper. That assumes a person moves from the District of Columbia (with the largest average non-federal tax burden of $9,730 per resident) to the least in Tennessee ($1,970) and that the person earns the median state income. Average per-resident taxes in the HireAHelper study included the following. From these an Effective Overall State and Local Tax Rate was calculated.
- Property taxes
- Sales taxes
- State income taxes
- Local taxes
The following tables shows the 10-states with the greatest and least overall total state and local tax burden. The tax metrics are reported on a per capita basis while incomes are per employed individual – hence the ultimate tax burden shown is not a true effective rate. Included in the tax metric are property, sales, and state income and local taxes. The last column shows what is termed the Effective Tax Rate which is calculated by dividing Per Capita Total State and Local Taxes by the Median Wage.
The next table shows these data for all 50 states and the District of Columbia including all of the other major state and local tax categories, sorted alphabetically.
To read the entire report from HireAHelper including data and metrics from all 50 states and the District of Columbia click https://blog.hireahelper.com/2019-study-moving-interstate-could-save-or-add-up-to-7700-on-your-state-tax-bill/
The majority of Americans benefitted from the 2017 Tax Cut and Jobs Act. Motley Fool’s 2018 study (findings published in the USA Today) estimated that 90 percent of time payers would pay less total federal income taxes and benefit from the tax cuts — though some would pay more. According to a just-published analysis by The Balance, only 4.8 percent of households paid more federal income taxes in 2018, increasing to 8.9 percent by 2025. To view The Balance article click https://www.thebalance.com/trump-s-tax-plan-how-it-affects-you-4113968
Some of the people that are now paying a greater federal income tax burden (due to the loss of deductibility from federal income tax obligations of a percentage of state and local tax payments) are relocating to more favorable state and local tax environments. CNBC referenced a Wall Street Journal op-ed forecasting that 800,000 people would depart California and New York in the next three years and an added 500,000 would exit Connecticut, New Jersey and Minnesota due to high state and local taxes. https://www.cnbc.com/2018/04/26/800000-people-are-about-to-flee-new-york-california-because-of-taxes.html New York State Governor Cuomo estimates that the Empire State will lose $2.3 billion in state tax revenues as the wealthy relocate themselves and their assets to more tax-friendly environments.
Where you live makes a difference in not just the weather and environment but also the tax landscape.