Capital gains tax is a hot topic because it affects your financial status, investment choices, and wealth growth. When you sell an asset and make a profit, that’s called a capital gain. Depending on how long you hold the asset and how you manage your gains and losses, you’ll usually owe taxes on it. High capital gains tax rates can really eat into your investment earnings.
Recently, more and more people are moving from high-tax states to low-tax states to lower their tax bills and overall cost of living. With this trend in mind, let’s explore some states that either don’t have a capital gains tax or offer relatively low rates.
This could help you keep more of your investment income and possibly enjoy a lower cost of living.
States with Low Capital Gains Tax Rates: A 2024 Update
Hey there! If you’re looking into states with low capital gains tax rates, you’ve come to the right place. Let’s dive into some of the states where you’ll find relatively low capital gains taxes in 2024.
a. North Dakota:
North Dakota is a great place for those wanting lower capital gains taxes. In 2024, the state has a capital gains tax rate of 2.9%. Here’s the kicker: North Dakota generally excludes 40% of capital gains from taxable income. That means you’re only paying taxes on 60% of your gains, which is pretty favorable compared to other states.
Essentially, if you sold some investments, you’d only have to worry about taxes on a little more than half of your profit.
b. Pennsylvania:
Next up is Pennsylvania. The state has a flat income tax rate of 3.07%. What’s interesting about Pennsylvania is that it doesn’t treat capital gains any differently than other types of income.
So whether you’ve got gains from selling stocks or bonds, they’re taxed at the same 3.07% rate. This makes things a bit simpler since you’re dealing with one straightforward tax rate for all your income.
c. Indiana:
Indiana is another state with a low flat-income tax rate, set at 3.05%. This means capital gains are taxed at the same rate as ordinary income. If you’re selling off some assets or investments, you can expect to pay just over 3% of your profits, which is quite low compared to many other states.
These states are great examples of places where you can keep more of your investment gains, thanks to their lower capital gains tax rates. Always remember to check the latest tax regulations or consult a tax professional for the most accurate and personalized advice.
Keep these states in mind if you’re planning any big investment moves.
States with No Capital Gains Tax
Let’s chat about states with no capital gains tax. There are a handful of them: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. These states don’t have personal income tax either, making them pretty unique.
Now, let me clear up a couple of things about Tennessee and New Hampshire. Tennessee does have a limited tax on certain dividends and capital gains, and New Hampshire taxes interest and dividend income, but it’s being phased out.
However, living in these states isn’t a free ride. Other taxes, like property and sales taxes, can be relatively high compared to other places. There’s been a lot of debate about whether these states are better to live in and if skipping out on capital gains tax means they’re missing out on some serious state revenue.
And let’s not forget Washington. Washington doesn’t have a personal income tax either, but thanks to a recent state Supreme Court decision, it does have a controversial capital gains tax. This tax is 7% on the sale or exchange of long-term capital assets (like stocks, bonds, business interests, etc.) that exceed $250,000. Only the portion of gains above that amount gets taxed, and some assets are exempt. This tax affects about 5,000 people in Washington.
There’s been quite a buzz about this tax. An advocacy group in Washington has gathered enough signatures to potentially have the tax appear on the November ballot. So, voters might get to decide whether to keep or repeal it. Some folks worry that this new tax will push people and businesses out of Washington to lower-tax states. It’s still early to see the impact, but IRS migration data shows that some high-tax states are losing billions in tax revenue as people move to states with lower taxes.
For instance, Tennessee, Texas, and Florida, which have no capital gains tax and no income tax, are popular spots for people moving from high-tax states. According to IRS data, the Carolinas are also becoming popular relocation spots because their property taxes are below the national average. This trend is particularly noticeable among people moving from high-tax states like California and New York.
Controversial Capital Gains Tax Upheld in Washington
Washington’s new capital gains tax, already exceeding projected revenues, has stirred quite a debate. There’s a concern that it might drive people and businesses out of the state. While it’s still too early to draw conclusions, we can look at trends in other states. For example, Tennessee, Texas, and Florida are among the most popular states for those seeking lower taxes. The Carolinas are also attractive due to their lower property taxes compared to the national average, making them popular choices for people leaving high-tax states like California and New York.
Keep an eye out for updates, as this issue is likely to evolve, especially with potential ballot decisions in the near future.
Comparing Capital Gains Tax Rates and Income Tax Rates
When thinking about taxes, it’s good to know that capital gains taxes, at least at the federal level, are generally lower than most other types of income taxes. Let’s break it down to make it easy to understand.
Here’s a detailed comparison table between Capital Gains Tax Rates and Income Tax Rates, highlighting the key differences and providing a clear and updated view:
| Aspect | Capital Gains Tax Rates | Income Tax Rates |
| Type of Income | Sale of assets (stocks, bonds, real estate) | Wages, salaries, interest, dividends, self-employment income |
| Tax Rate Basis | Flat rates based on holding period and taxable income | Progressive rates based on income brackets |
| Tax Rates (2024) | 0%, 15%, 20% (long-term)Ordinary income rates (short-term) | 10%, 12%, 22%, 24%, 32%, 35%, 37% |
| Holding Period Requirement | Long-term: More than 1 year Short-term: 1 year or less | No specific holding period requirement |
| Tax Brackets | Adjusted yearly for inflation | Adjusted yearly for inflation |
| State Tax Treatment | Varies by state; some states don’t distinguish from ordinary income | Varies by state; generally follows the same or similar structure |
| Example Income Levels | Long-term capital gains for single filers: 0%: $0 – $44,625 15%: $44,626 – $492,300 20%: Over $492,300 | Federal income tax for single filers: 10%: $0 – $11,000 12%: $11,001 – $44,725 22%: $44,726 – $95,375 24%: $95,376 – $182,100 32%: $182,101 – $231,250 35%: $231,251 – $578,125 37%: Over $578,125 |
| Tax Planning Impact | Favorable for long-term investments; encourages holding assets for over a year | Varies based on income level; progressive structure can result in higher taxes as income increases |
Understanding Your Overall Tax Burden: A Personal Perspective
When it comes to understanding your overall tax burden, it’s important to remember that capital gains taxes are just one part of the puzzle. To get a complete picture of your potential tax liability, let’s take a closer look at a few key areas:
1. Sales Taxes: Some states have lower sales taxes, which can make a big difference in your overall spending. For example, as of 2024, states like Oregon, New Hampshire, Montana, Delaware, and Alaska do not have a state sales tax, which can save you money on everyday purchases.
2. Property Taxes: Property tax rates vary widely from state to state. For instance, states like Hawaii and Alabama have some of the lowest property tax rates in the country, while New Jersey and Illinois have some of the highest. Knowing these rates can help you plan better if you own or plan to buy property.
3. Pink Tax: The so-called “pink tax” refers to the extra cost that women often pay for certain products and services. While not an official tax, it’s an important factor to consider when evaluating your overall expenses. Some states have started to address this issue by passing laws to eliminate gender-based price discrimination.
4. Death Taxes: Also known as estate or inheritance taxes, these can significantly impact the cost of passing on your wealth. States like New Jersey and Maryland impose both estate and inheritance taxes, making them some of the most expensive states to die in. Conversely, states like Texas and Florida do not have these taxes, making them more favourable for estate planning.
By keeping these factors in mind and doing a bit of research, you can get a clearer picture of your potential tax liabilities and make informed decisions about where to live and invest.
Wrapping Up
To sum it up, understanding the tax landscape across different states can significantly impact your financial planning and investment decisions. Whether you’re considering a move to a low or no capital gains tax state or assessing the overall tax burden, being well-informed can help you retain more of your earnings and enjoy a better quality of life.
Remember, taxes are just one part of the puzzle; considering factors like property taxes, sales taxes, and other expenses will provide a comprehensive view of your financial outlook.
Stay proactive, consult with tax professionals, and make choices that align with your financial goals.
Frequently Asked Questions
Ques. What are the 2024 long-term capital gains tax rates?
Ans. For 2024, the long-term capital gains tax rates are 0%, 15%, and 20%, depending on your taxable income. The 0% rate applies to single filers with taxable income up to $47,025, 15% for income between $47,026 and $518,900, and 20% for income above $518,900.
Ques. How are short-term capital gains taxed in 2024?
Ans. Short-term capital gains, which are gains on assets held for one year or less, are taxed at ordinary income tax rates. These rates range from 10% to 37% based on your total taxable income.
Ques. Which U.S. states have no capital gains tax in 2024?
Ans. States with no capital gains tax include Alaska, Florida, Nevada, South Dakota, Texas, and Wyoming. These states do not have a personal income tax, making them attractive to investors.
Ques. What is the impact of Washington’s new capital gains tax?
Ans. Washington introduced a 7% tax on the sale or exchange of long-term capital assets over $250,000. This new tax has sparked debate about its potential impact on the state’s economy and migration trends.
Ques. What strategies can reduce capital gains tax liability?
Ans. Strategies to reduce capital gains tax include utilizing the annual exemption amount, offsetting gains with losses, giving assets to a spouse, and holding assets for over a year to benefit from lower long-term rates. These methods can significantly minimize your tax burden.
Ques. How does the federal capital gains tax differ from state capital gains taxes?
Ans. Federal capital gains tax rates are fixed and based on holding periods and income levels. State capital gains taxes vary, with some states taxing them as ordinary income and others offering lower rates or exemptions.
Ques. What are the thresholds for capital gains tax in 2024?
Ans. The income thresholds for long-term capital gains tax rates in 2024 are $0 – $47,025 for 0%, $47,026 – $518,900 for 15%, and over $518,900 for 20% for single filers. These thresholds are adjusted annually for inflation.
Ques. How do capital gains taxes affect real estate transactions?
Ans. Capital gains on real estate are subject to the same rates as other assets. However, primary residences may be exempt up to $250,000 for single filers and $500,000 for married couples filing jointly, provided specific criteria are met.
Ques. Are there any exceptions to capital gains tax rates?
Ans. Yes, exceptions include collectables, which may be taxed at a higher rate of up to 28%, and qualified small business stock, which can have different exclusions and benefits under certain conditions.
Ques. How can moving to a low-tax state benefit me?
Ans. Moving to a state with no or low capital gains tax can significantly reduce your overall tax burden, especially if you have substantial investment income. This can lead to higher after-tax returns and potential savings in other areas such as income and property taxes.
Also Read –
Project 2025 Tax Changes: Detailed Insights and Important Facts for Tax Payers
2024 Income Tax Brackets: Federal Tax Rates and What They Mean for You