States with the best tax regimes for the wealthy

Investing Strategies Retirement Investing
1

The best state for wealthy oligarchs is Florida, #2 is Washington State where you get Florida-like taxation without all the racism and dysfunction that adds extra costs beyond the tax rate.

This link has The 10 Most Regressive State and Local Tax Systems

Full article

intercst

4 Likes
2

I’m surprised to find Illinois on your list. They have massive unfunded liabilities. One day residents and real estate owners are likely to be assessed for their share. A very blue state. Not a good place for those looking for a tax deal. Low taxes are an illusion.

1 Like
3

You can still safely capture the low Illinois tax rates for the wealthy by renting a home instead of buying. I definitely wouldn’t be buying a home in Florida if I moved there. Renting is the lower risk alternative.

intercst

2 Likes
4

Not to mention that Florida’s property insurance rates (when you can find property insurance) are astronomical compared to WA state. Even as a renter, you will pay for property insurance, because it’s a cost that the landlord will pass on to you in the form of higher rent.

AJ

4 Likes
5

Sometimes they can, sometimes they can’t. As a very savvy renter with 30+ years experience, I’ve found that the monthly rental price is based on what the local market will bear, rather than the landlord’s costs. Also, landlords are often willing to lower the rent for high quality tenants who threaten to leave. That’s because there’s also an additional cost to the landlord in finding another high quality tenant.

intercst

2 Likes
6

Do you think owners don’t capture the cost of taxes in their rent? What else do you think they give away? Electricity? Water? Heat? Parking? You understand that owners are in it to make money too, right?

I’d bet there is the occasional situation where an owner is negative on costs, but in aggregate, taxes get paid, and they get paid by the person occupying the dwelling.

3 Likes
7

I’ll never be wealthy enough to have taxes dominate other expenses to the point that I start wondering where I should live.

5 Likes
8

I can only give you my experience of living in Houston off and on for 25 yrs. When I moved to Houston from NY in 1981, I was paying $400/mo for a 600 SF apartment. When I left for WA State in 2006, I was paying $580/mo for a 750 SF apartment. So my landlords, in aggregate, didn’t even recover inflation over those 25 years. It’s quite possible I was getting as an extraordinary a rental deal as you did on the buy-side with owning your Boston condo. But you’d only know it if you were using a rent vs. buy calaculation to inform your real estate decisions. I did notice that things got crazy cheap after the dot.com bust in 2000 when everybody started putting money into REITs and a large portion of it seemed to be spent on apartment construction in Houston.

pauleckler was saying that unfunded pension obligations would eventually increase property taxes in Illinois. I agree that’s a risk. If it bothers you, rent, so that it’s easier to leave the state when “stuff hits the fan”.

intercst

9

Great article. No doubt that taxation in USA is rigged in favor of the wealthy, as your article shows. And the Federal rigging is even more blatant,imo, than the States.

2 Likes
10

My personal experience is two things matter. The local rental market and my actual costs on the property. Your statement suggests the property cost factor is based on purchase price at the start of a lease. Landlords with even a low level of smarts were not buying properties as interest rates recently spiked.

1 Like
11

In many cases it has nothing to do with “wealthy” or not. Most of these decisions are made “on the margin”. Both for the wealthy and for the non-wealthy. Here are two real-world examples:

  1. A very wealthy hedge fund manager in a medium tax state has been paying a about 5% income tax for decades. The business is located in a nearby large city and employs 60 people. The state needs to raise money and decides to enact a “millionaires” special income tax rate of 7.5%. This person pays it for the first year, and then decides to move to a different state with a much lower income tax rate. And two years later, for a few reasons, but mostly for their own convenience, they move the business to that state as well.
  2. A young middle-class couple settled in NJ in 1989. One spouse works as a truck driver and the other spouse is a teacher at a local school. They bought their house for $124,000 in a medium sized city. Mortgage payment was $700/mo + $150 for taxes + $50 for insurance. They managed well over the years. The mortgage was paid off by 2020 leaving just the taxes and insurance monthly. Taxes went up gradually each year as the assessed value of their home went up, but only in the late 10s and early 20s did it begin to explode. The house is now worth $640k, and taxes are now $11,500 a year. Insurance is another $1,400. They’ve both retired, the truck driver has no pension but save $260,000 in a 401k. The teacher has a pension that will begin in a few years at age 65. They plan on living on savings until they begin drawing social security and the pension kicks in. They see that just the taxes and insurance on their home is over $1000 a month. They were planning to move somewhere warmer when the pension+social security stated, but instead they decide to move away right away to get the $640k equity out of their house, and to stop that over $1000/mo expense of taxes+insurance. They move to Florida to an over-55 community where their condo (a nice one inland) costs $235,000 (paid in cash using some of the house money) and the monthly costs are $265 for tax, $250 for insurance, and $500 condo (HOA) fee which includes the pools, the gym, and tickets to weekly shows at the clubhouse.

These are real-world examples of how marginal changes in taxes cause people to make choices regarding where to live. Both wealthy and non-wealthy.

3 Likes
12

My favorite was an $8 MM brownstone in Park Slope Brooklyn has a property tax bill of $20,000/yr. A $900,000 home in Westchester has the same $20,000/yr property tax bill – that’s like as high as Texas property taxes.

https://www.nytimes.com/2020/01/30/nyregion/property-tax-reform-nyc.html

intercst

1 Like
13

They can try. Doesn’t necessarily mean they do.

2 Likes
14

Of course not. I was responding to the Subject of this thread: States with the best tax regimes for the wealthy. And the posts in the thread that exemplify how taxes are just one of the factors that go into cost of living.

1 Like
15

NYC real estate taxes are absurd. They have little relationship to value, and a very strong relationship to what deal the developer was able to make with the corrupt local politicians. And the reason NYC can do this is because they have a thriving business sector that pays taxes to fund the expensive stuff like education. Meanwhile, all the areas outside NYC (Westchester, Long Island, NJ, etc) have to fund education mostly using property taxes. It leads to absurdities like you mention above.

1 Like
16

And if they can’t, they sell. A landlord isn’t going to carry a liability long term.

Frankly, I have found that one of the biggest indicators of how much rent we could charge was what mortgage rates were. The toughest time we had getting good tenants was when rates were so low that it was cheaper to buy than rent. Made it real easy to sell, though.

IP

5 Likes
17

Houston has probably been one of the worst property markets in the country during those years. The oil business cratered repeatedly during that period, the housing market was up and down, housing stock prices (and rentals, obviously) swung wildly as people moved in and out because of the local economy. My experience in Boston was different, as you properly note, although there were good times and bad, but nothing like Houston.

IMG_0451
IMG_04511615Ă—682 141 KB

2 Likes
18

The oil business has cratered repeatedly since oil was discovered at Spindletop, Beaumont TX in 1901. It’s a cyclical industry. But you can do very well if you’re using a rent vs. buy analysis to inform your real estate decisions and putting your housing down payment elsewhere.

Half the housing markets in the country have delivered price appreciation of less than 4% per year over the past 100 years according to the Case-Shiller Housing Index. Doing a rent vs. buy analysis works in all those places, too.

intercst

2 Likes
19

At some sales price the numbers work out. I think San Francisco office towers are now changing hands at about 75%-off their peak value.

When I bought my current home in 2012, it was 70%-off its 2008 sales price. Perhaps this cycle we deliver the same kind of bargains?

intercst

2 Likes
20

It all depends on your belief. If you believe that offices will never again be populated with 80+% of the employees (that typically work at a desk), then no, maybe not yet. But if you believe that offices will again soon be populated with 80+% of the employees (that typically work at a desk), then yes. In other words if you think WFH will remain a “thing” then no, otherwise yes.

1 Like