I live in a tax free state now (TX) and plan to move to CA next year. I have long term stock worth $1million and wages of $50000. How much should I sell this year?

[pnalaba1]

I'm seeking tax advice.

I live in a tax free state now (TX) and am planning to move to California next year. I have long term investment stock worth  $1 million  and wages of  $50000. How much should I sell this year? Since I'm in tax free state now, I'll pay less tax than I would next year in CA, but on the other hand, if I sell more than $200,000 I need to pay medicare investment tax. What is the best strategy?

I should also add that the only reason I want to sell now, is to generate a tax event. I expect the stock price to go up, so I would like to buyback 80% of the stock.

[TaxGuyBill]

The stock may by "worth" $1,000,000, but how much is the "Gain" (profit)?  The Gain is what is taxable, not the net "worth".

[Carl]

You may want to talk with a Tax Attorney or CPA who is familiar with CA tax law. If your move will result in CA being your new tax home, there "may" be things you can do prior to the move, which we are not aware of that may help reduce or possibly even eliminate taxability of gain by the state.

[pnalaba1]

Sorry for not being clear. The cost basis was very low (about $20,000), so gain is almost  $1000000.

[Opus 17 · Accepted solution]

The federal tax on your gain will be the same either way, 15% and 20% (because the amount is so high).

California does not have a specific capital gains tax rate, your gains are taxed as ordinary income at a rate of 10-13.3% at your income level (assuming you liquidated the entire gain all at once.)  That's way more than the 3% additional investment tax.

While I am not a professional tax advisor, it seems like you would save about $100,000 in taxes if you liquidate your stocks and realize your gains while you are still a Texas resident.  Even if you turn around and immediately re-buy the same stocks (because then when you sell them later in CA, you will have reduced the amount of gain in CA by taking most of it early.)

But you should definitely find a good tax planner.  And you may also want to think about low tax investment strategies that might make sense living in CA.

[pnalaba1]

Thank you. I appreciate the advice - it gives me assurance that I'm on the right track. I will consult a CPA to make sure I'm taking all tax factors into account.

[TaxGuyBill]

A couple of other things to consider:

The 'extra' income is likely to reduce or eliminate any credits or deductions that you qualify for.

From a tax standpoint, it would be ideal to sell part in 2017 and part in 2018 (before you move to California), as that is likely to reduce your taxes.

[Opus 17]

However, make sure you completely understand the rules on CA residency if you do try to sell part in 2018 while still a TX resident, so that CA can't come back and claim you were a CA resident.

[pnalaba1]

Thanks Opus17 and TaxGuyBill for your advice. Selling part in 2018 makes sense, but I'm definitely scared of CA not letting any of my income go un-taxed by state. Will definitely need to check with CPA.

[Carl]

For those of us who live in states that don't tax personal income, CA has some rather convoluted tax laws. So checking with a Tax Attorney or CPA who is intimately well versed in CA tax law is a good idea. But still, regardless of what you're told the four most important words you can say to a CPA/Tax Attorney are, "show me in writing". Laws change all the time, and it's not uncommon for any lawyer or CPA to not be up to date on the most current changes.

[crouchntiger]

What did you end up doing? I'm moving from Seattle to CA.