Capital gains tax strategy when moving from no-tax state to state with income tax

This is a classic tax planning scenario when moving between states with different tax structures. You've already identified the main tradeoff - paying federal tax now versus paying both federal and state tax later. A few things to consider: First, make sure you're calculating the true cost. While you'd save 4.75% on state taxes, you're also losing the time value of money on the federal portion you pay early. That's not just the compounding of potential gains, but also the present value of tax dollars. Also, carefully consider your residency transition. States have different requirements for establishing residency, and high-tax states tend to be aggressive in claiming new residents as quickly as possible. Make sure you document your residency change clearly - including driver's license, voter registration, banking details, etc. Finally, think about your long-term investment strategy. If these are positions you'd eventually sell anyway, accelerating that might make sense. But if these are long-term holds you'd prefer to keep, consider whether the tax savings justifies changing your investment approach.

I was in a similar position when I moved from Washington (no state income tax) to California a few years back. I used https://taxr.ai to analyze my portfolio and run different scenarios. It helped me understand that in my case, realizing about 60% of my gains before the move made the most sense for my situation. What was really helpful was seeing how the tax impact would play out over different time horizons. I found that for assets I planned to hold for 10+ more years, it actually made more sense to keep them unrealized even with California's high tax rate. But for assets I'd likely sell within 3-5 years, realizing them before the move saved me a lot. The analysis also helped me identify which specific lots to sell based on their cost basis and potential future growth.

Just wanted to follow up about my experience with taxr.ai after trying it based on this thread. It was actually really helpful for my situation (moving from Texas to New York). I uploaded my brokerage statements and it showed me exactly which positions would be most tax-efficient to sell before my move. What surprised me was that for some of my holdings, it made sense to keep them until after the move, despite New York's higher tax rate. This was because of their lower growth potential and how long I planned to hold them. The visualization of different scenarios over time made it much clearer than just looking at spreadsheets. Definitely worth checking out if you're planning an interstate move with significant investments.

Another thing to consider is getting through to the IRS if you have questions about your specific situation. I tried for weeks to get clarification on a similar capital gains situation when I moved states. I finally used https://claimyr.com to get through to an IRS agent (check out how it works: https://youtu.be/_kiP6q8DX5c). They basically hold your place in line and call you when an agent is available. I got definitive answers about reporting requirements for state-to-state moves and realized gains. The IRS agent confirmed that as long as the sale occurs while you're still a legal resident of your no-tax state, the gains aren't taxable by your future state. But they emphasized how important timing and documentation are.

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it anyway because I was desperate to talk to someone about my own state tax situation with unrealized gains. I had been trying to reach the IRS for days with no luck. Used the service this morning, and two hours later I got a call connecting me with an actual IRS agent who answered all my questions about capital gains reporting across state lines. The agent confirmed that as long as I sell while still a legal resident of my current state, the new state can't tax those gains. But they also warned me about the importance of clearly establishing my move date with proper documentation. They recommended keeping copies of closing documents, moving receipts, utility connection/disconnection dates, and updating my address with financial institutions right away. Worth every penny to get clear information directly from the IRS instead of hoping internet advice applies to my situation.

Don't overlook the time value of money in your calculations. If you realize $675k in gains now, assuming a 15% federal long-term capital gains rate, that's about $101k in federal taxes paid now instead of later. If you're moving in 2 years and would otherwise hold these investments for, say, another 5 years total, that's 3 years of having that $101k working for you. At a 7% annual return, that's worth around $22k in lost growth. So compare: - Pay $101k federal now = $101k total - Pay $101k federal + $32k state (4.75% of $675k) later = $133k total, but delayed 3+ years The math changes based on your actual timeline and expected returns, but don't just focus on the state tax percentage alone.

Has anyone considered the Alternative Minimum Tax implications here? I'm not a tax expert, but I think large capital gains can sometimes trigger AMT, which might change the math on this decision.