Hello,

I have a good friend, actually he is my best friend - but there is an issue i totally disagree with him.

He bought some stocks 10,15 years ago that are tremendously more worth today - gaining about $500k in worth.
Now he wants to sell it all and to avoid the fairly high state taxes on that capital gain (New York state) he wants to move (at least temporarily) to Florida or Texas (no state taxes).

Most of his family and other friends think that's pretty smart - specially as he is single, self-employed and therefore location independent.
As much as I can understand the motivation to save money is it just me who thinks that it's just wrong??
You live your whole live in one state, use all the advantages and then if it's not convenient any more ... walk away ... and then after filling taxes just come back ...

It's called Tax Planning, Rich people do it all the time.

Why should NY (or any state for that matter) be entitled to a share of your capital gains? If a state wants to tax W-4 income, that's one thing, presumably you are using the state's roads, services, etc. But stocks and bonds don't impose any additional cost on the state government.

As long as your friend follows the state tax laws, then I don't see any problem with his plan. Why do you think so many retirees move to Florida? It's not just the warmer weather.

Part of the reason why most military members retain residency in FL or TX.

xCarsonx said:Am I wrong about this but can't you write your state income taxes off on your federal return?
The classic spend a dollar to save a quarter argument.

Accounting 101:

Avoidance = Good
Evasion = Bad

Hope that helps.

bozo007 said:HumDoHamaraDo said:It's called Tax Planning, Rich people do it all the time.
Rich people also start working on it much before the taxes are due.
He has not sold the shares yet so no taxes are due. He moves to FL, stays there a year or less to establish residency and sells his shares. btw, I know a few people whose 'resident' state is FL but spend a lot of time in NJ. They also bought property in FL for the Homestead Exemption.

soupcxan said:Why should NY (or any state for that matter) be entitled to a share of your capital gains?Cuz they can - and do.

Heck, you're taxed on your earnings outside the country.

It's all about wealth redistribution - and we're going to see more of that in the future.

Don't forget Nevada. It has a lot of good stuff going. NYS has no oil, but nothing is stopping it from openning some casinos.

I haven't heard anyone mention the costs of moving. Unless he lives in a transient hotel with just the clothes on his back, there are costs involved beyond just a Greyhound ticket.

Does he own a home in NY? It's not enough to just rent a furnished apartment in Florida and yell at the top of your lungs "I do declare myself to be a Florida resident." You have to abandon your NY residency. Even if Florida considers him a resident, NY can also consider him a resident at the same time.

To make a convincing case that he had abandoned his NY residency, he will probably need to sell his house there. Which means real estate commissions and other fees. It could possibly mean tax on any profit from the sale (if it exceeds the exclusion amount). Even if he decides to take a risk and not sell, there is the expense of rent for a year in Florida. Or if he buys a place to live in Florida, there are expenses, too.

And there are the expenses of moving back. He might have to sell a place in Florida and buy a place in NY. Real estate prices may have changed. He may make a profit, he may take a loss. In the worst case, prices in FL may have dropped and prices in NY may have increased.

I notice that the person who suggested that there is a federal deduction for state taxes got red, but this is also a consideration. Any lost federal deduction will decrease the potential profit to be made by moving. (The deduction decreases the out of pocket cost of paying tax to NY.) Of course, we can't tell what the actual benefit of a deduction would be because AMT will probably come into play here.

And how certain is this profit? If he waits to sell until after he moves, could the value of the investment decline by an amount exceeding the NY tax?

You say he is self-employed. Will his clients follow him to Florida? What will the costs of re-establishing his business in FL be? I don't know the nature of his business, but if he continues working in NY while nominally living in FL, he'll have a harder time proving he abandoned his residency there.

Yes, it may be profitable. It's hard for me to imagine myself moving back and forth for less than the cost of the taxes he will save, but I'm not him. But I've seen no mention of any other costs involved in this scheme than just the tax savings.