Consider Tax Issues Before Moving Across State Lines

Tax can be a deciding factor?if you're contemplating a move to a different state.? Here's an overview of how to evaluate the tax picture in various states you might be considering.

Investigate All State and Local Taxes

If your intent is to relocate to a lower-tax state, it may seem like a no-brainer to move to one that has no personal income tax.? But to avoid an expensive misstep, you must be aware of?all?the state and local taxes that can potentially apply to residents, including:

• Income Tax,
• Property Tax,
• Sales Tax, and
• Death Tax.

For example, Bob is considering a move from Colorado Springs to Dallas, Colorado has a flat 4.4% personal state income tax rate, and Texas has no personal state income tax.? Bob has a healthy income, so he assumes that it'll be much cheaper tax-wise to move to Dallas.? But he's failing to see the full tax picture, in this case, the local property tax in Dallas.

Colorado tax bill.? Bob's taxable income is $200.000.? So, his Colorado state income tax bill is $8,800 ($200,000 times?4.4%)? The property tax rate on a home in some Colorado Springs locales is about 0.55% of the property's actual value, as determined by the county assessor.? Bob's home was assessed at $700,000, so his annual property tax bill is approximately $3,850 ($700,000 times?0.55%).? Therefore, his combined property and state income tax bill is $12,650 ($8,800 plus $3,850).? It should be noted that Colorado Springs is about in the midrange of property tax in Colorado.

Texas tax bill.? There's no state income tax in Texas.? Property tax in Texas varies widely by county, with Dallas being among the highest rates in the state.? Assuming Bob buys another home in his preferred locale of Dallas for $700,000, the annual property tax bill would be about $25,300 ($22,200 for someone over 65 or a surviving spouse), according to the Dallas Central Appraisal District's online property tax estimator.? Bob is only 50, so the relevant number for comparison with his total Colorado Springs tax bill would be about $25,300. This example demonstrates the importance of looking at the?entire?tax picture that would apply in your specific circumstances.? Higher property taxes in Dallas compared with Colorado Springs could overwhelm the no-state-income-tax factor.? But if Bob had higher income or if he decided to downsize to a less expensive home or a different Texas county with lower property tax rates, he might have arrived at a different decision.? Your tax advisor can help you run the numbers to determine what's right for your situation.

Avoid States with High Death Taxes

With today's ultra-generous federal estate tax exemption, you're probably exempt?from any current federal estate tax worries.? For individuals who make gifts in 2023 or die in 2023, the unified?federal?gift and estate tax exemption is $12.92 million?(effectively $25.84 million for a married couple).? The current unified federal exemption?is scheduled to revert to the 2017 level (adjusted for inflation from 2018 through 2025) in 2026 unless Congress extends the more generous exemption.? The post-2025 fate of the federal exemption is uncertain. For 2023, quite a few states and the District of Columbia impose their own estate tax or inheritance tax, and these taxes can vary widely from the federal estate tax deal.? Maryland imposes both an estate tax and a death tax.? Except in Connecticut, the exemptions, if any, from these state death taxes can be far below the federal estate tax exemption. If you have a sizable estate and move to the "wrong" state, your estate, under the current rules, could be completely exempt from any?federal?estate tax hit, but badly exposed to a significant?state?death tax hit.

Here's the state death tax picture for 2023 based on currently available information:

Connecticut.? The estate tax rate is 12% on estates valued at more than the $12.92 million exemption.

Hawaii.??The top estate tax rate is 20%.? Currently, a $5.49 million exemption is allowed.

Illinois.? The top estate tax rate is 16%.? Currently, a $4 million exemption is allowed.

Iowa.? There's no estate tax, but the state's inheritance tax ranges from 2% to 4%.? Surviving spouses, lineal ascendants, lineal descendants, and adopted children and stepchildren are exempt.

Kentucky.? There's no estate tax, but the state's inheritance tax ranges from 4% to 16%.? Members of the most-common class of beneficiaries - such as surviving spouses, children, parents and siblings - are exempt.? Small exemptions are allowed for members of other beneficiary classes.

Maine.??The top estate tax rate is 12%.? For 2023, a $6.41 million exemption is allowed.

Maryland.? This state has?both?an estate tax and an inheritance tax.? The top estate tax rate is 16%.? Currently, a $5 million exemption is allowed.? The separate inheritance tax is imposed at a 10% rate, with the taxable amount based on how closely related the beneficiary is to you.

Massachusetts.??The top estate tax rate is 16%.? currently a $1 million exemption is allowed.? But the state legislature is considering increasing it to $2 million.

Minnesota.? The top estate tax rate is 16%.? Currently, a $3 million exemption is allowed.

Nebraska.? There's no estate tax, but the state imposes an inheritance tax with a top rate of 15%.? Exemptions are available depending on the relationship between the beneficiary and you.

New Jersey.? There's no estate tax, but the state imposes an inheritance tax with a top rate of 16%.? Certain close family members are exempt.

New York.? The top estate tax rate is 16%.? For 2023, a $6.58 million exemption is allowed.

Oregon.??The top estate tax rate is 16%.? Currently, a $1 million exemption is allowed.

Pennsylvania.? There's no estate tax, but the state imposes an inheritance tax rate that ranges from 4.5% to 15%, depending on the relationship between the beneficiary and you.? Surviving spouses are exempt.

Rhode Island.? The top estate tax rate is 16%.? For 2023, a $1.764 million exemption is allowed.

Vermont.??The estate tax rate is a flat 16%.? Currently, a $5 million exemption is allowed.

Washington.??The top estate tax rate is 20%, which is the highest rate for?any state.? Currently, an exemption of only $2.193 million is allowed.

Washington, D.C.? The top estate tax rate is 16%.? For 2023, a projected $4.594 million exemption is allowed.States that aren't listed don't currently?impose any death tax on their residents.? However, state legislatures could change that at any time.? Your tax advisor can give you the latest information.

Best Case, Worst Case

In many situations, the difference in your entire state and local tax bill from moving across state lines will be minimal.? However, in some situations, the difference can be substantial - maybe ever a deal breaker!To illustrate, Marge retired last year and wants to live in Washington to enjoy the natural beauty of the Cascade Mountains.? The state has no personal state income tax.? But Washington?has the highest top estate tax rate (20%), and her estate is well above the current exemption ($2.193 million).? Plus, sales taxes in some localities are over 10%.The other location?Marge is considering is Naples, Florida, to comb for seashells and enjoy sunsets on the beach.? This state has no personal income tax, no death tax and lower sales tax rates in many jurisdictions.? From a federal, state and local tax perspective, in Marge's circumstances, Florida seems like a better state to relocate to than Washington.

Bottom Line

Of course, there's more to factor into relocation decisions than state and local taxes.? For instance, you might decide to move to be closer to your loved ones or preferred medical?facilities - or to escape brutal winter weather, stifling summers or the threat of hurricanes.? Or maybe you're just looking for a slower pace of life or a more active, outdoor lifestyle.? Plus, relocations aren't just for seniors anymore; flexible working arrangements are making relocations possible for more working-age people, too.Increasingly, people are factoring tax issues into their decisions about where to call home.? In addition to evaluating the entire tax situation that may apply in a city or state, it's important to consider local plans to raise or lower taxes in response to changing political or economic conditions.? Your tax advisor can help?you evaluate all the variables.

About Brooke Chase Associates, Inc.

Brooke Chase Associates, Inc. is the premier executive search firm specializing in the recruitment of executive management professionals within the building materials and kitchen/bath industries.? Established in 1980, our list of clients has grown to become a virtual "Who's Who" of both domestic and international firms for whom we have successfully?recruited professionals.? A testament to our success is that many of our clients have utilized our services for over 43?years.? We have one of the best "Completion" and "Retention?Rates" in the industry.? At Brooke Chase Associates, Inc., a strong emphasis is placed on our client relationships.? A retained, exclusive?executive search is a strategic, not transactional, relationship with the hiring manager and human resources, the "search committee."? Our business is driven by a single principle:? Successful companies start with successful people.Brooke Chase Associates, Inc. has its Corporate Headquarters in Sarasota, FL.? For additional information contact Joseph McElmeel, Chairman and CEO of Brooke Chase Associates, Inc. at 941-479-6382 or?jmcelmeel@brookechase.com

Disclaimer:Our firm provides the information in this e-Newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind.? The information provided herein should not be used as a substitute?for consultation with professional tax, accounting, legal, or other competent advisers.? Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.? Tax articles in this e-Newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer.? The information is provided "as is,"? with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties or performance, merchantability, and fitness for a particular purpose.