Capital Gains tax when you switch investment to another state

3 Replies

Thank you for any advice given. The issue is that NYC and State take an enormous tax chunk out of your investment earnings. So if you relocate your investment property to another state are you still obliged to pay the taxes of the state where you initially executed the 1031 exchange?

Talk to your accountant to confirm but I believe state and federal taxes are exempted, even when moving from one state to the next. I just worked with a client that sold three properties in California and bought in Wyoming and his taxes were exempt.

@Nina Phillips, Generally your state of residence is going to want to tax income you make while a residence of that state.  Usually doesn't matter where the income is made.  They will also generally give you credit for any tax you must pay in the state that you actually have the asset located in.  But if there's a difference they'll probably want it.  

The answer is to not only transfer the property tax deferred using the 1031 exchange but also transfer residency to a more tax advantaged state.  Then when selling that asset or making money from operating the asset you only pay federal tax.

For you the great migratory path for decades has been I-95 South - all the way south :)

Caveat - For the CA folks looking to migrate along I-15 to Las Vegas, CA has a nasty thing called the "Clawback".  Even if you 1031 property out of CA you will pay tax on the gain from the time it was in CA regardless.  While this is still limited to CA how long can it be before other "tax hungry" states could follow suit.

Promotion
BiggerPockets
The one-stop-shop for REI
Find Local Home Improvement Pros!
Check out our network of trusted, local contractors for all of your home improvement projects.
Find a Contractor

Jeff, 

Thank you so very much for this information and very sound advice. I hope in some way to be able to reciprocate if you need any guidance regarding the NYC real estate market. You gave me the incentive to broaden our search. Much appreciated.

Nathan, 

Thank you for your input. This is very helpful information.

Wishing both of you the best of luck in using your expertise.

Nina