New tax laws have home buyers checking new places | Wall Street Journal

November 8, 2018

WSJ: New Tax Laws Have Home Buyers Checking New Places, The new cap on deductions for taxes, including on property, have people looking for deals outside high-tax states; Florida and Nevada more popular after GOP overhaul

New tax rules that cap deductions of state and local taxes are having a disproportionate effect on taxpayers who live in states with high income taxes and property taxes.

While it’s too early to quantify the impact of the Tax Cuts and Jobs Act, which became effective on Jan. 1, some real-estate professionals say they are beginning to see early signs of an exodus to low-tax states.

Before the new rules, taxpayers who itemized could write off an unlimited amount of state and local taxes, unless disallowed under the alternative minimum tax. But now, the deductions are capped at $10,000.

The change most affects taxpayers in states with high income and property taxes. According to the Tax Foundation, a pro-growth tax-policy nonprofit, the six states with the highest state and local tax deductions as a percentage of income are New York, New Jersey, Connecticut, California, Maryland and Oregon.

There are also provisions in the new tax law that benefit high-net-worth individuals, such as a reduction in the top individual tax rate and an increase in the estate and gift tax exemption.

Real-estate developer David Hutchinson, president of Ketchum, Idaho-based VP Cos., is touting the tax advantages of living in Nevada on his company website that highlights Clear Creek Tahoe, a golf community that will ultimately include 391 custom homes—a project in which he is a minority interest holder. The border between California and Nevada bisects Lake Tahoe. Californians to the west can pay a state income-tax rate of up to 13.3%, while Nevada residents just 30 minutes to the east pay no state income taxes.

“Most of our lot sales are to buyers from California, the vast majority of whom intend to make them a permanent residence,” Mr. Hutchinson says. “If you’re a wealthy tech executive from the Bay Area who can live wherever you want and you have a $3 million income, you would have $399,000 a year in savings here. That’s a lot of money to spend on real estate.”

If you’re thinking of relocating to reduce your taxes, here are some things to consider. Consult a tax specialist for specifics.

• It isn’t just about the taxes. Consider your lifestyle as well. “Make sure you want to live there, and that it’s not just to save the taxes,” Mr. Hutchinson says. “It is great to save money, but if you’re not a Texas person and you move there just to save on income taxes, that’s a mistake.”

• Look at all the costs. When deciding whether to move—and where—look at the other costs of ownership. For example, a state with low income taxes may make up for it with a high sales tax. Or, in states like Florida, you may end up paying substantially higher costs for homeowners insurance. You may ultimately save on income taxes by establishing residency elsewhere, but if the state you’re moving to has higher costs of ownership, it might turn out to be a wash.

• Keep up on the news. Some states, like New York and New Jersey, are trying to fight back against the federal limitations on the state and local tax deductions through workarounds that would allow residents to continue to benefit from the deductions. There is no way of knowing, however, if these tactics will ultimately survive a challenge by the IRS.

Source Article credit: The Wall Street Journal

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