“Should I leave California and move to a state with no income tax?”
This conversation lands on my desk all the time, usually at one of two moments:
- Retirement is on the horizon
- A new job opportunity is pulling someone out of the Bay Area
With California’s notoriously high-income tax, clients who spent decades building careers in San Francisco, the South Bay, or the Peninsula are looking at their tax bill and asking a hard question: Does staying put make financial sense?
We often turn to spreadsheets for certainty, but the big choices in life are rarely made by numbers alone.
Ultimately, it’s your personal values and family goals that should drive the decision. But thoughtfully exploring those numbers first (with someone who understands your complete financial picture) is what takes the weight off a heavy question and turns it into a clear path forward.
Why Bay Area Clients Think About Leaving (and Why Most Don’t)
California’s top income tax rate sits at 13.3%, among the highest in the country. For clients with significant W-2 income or investment gains, the difference between staying here and moving to a state with no income tax (think Texas, Florida, Nevada, or Washington) can look substantial on paper. And if you move during your working years and have no state income tax for the next 20 or 30 years? The impact is huge.
And the reality is often more complicated. Moving your entire life across the country isn’t as easy as grabbing a new tax form.
In my experience, people who move out of California rarely do so just because another state has no income tax. There has to be a tie. People are moving back somewhere they grew up, or to be closer to adult children and grandkids, or to pursue a new job opportunity.
Even in those instances, it’s usually a slow transition. We see it most clearly with the New York-to-Florida pattern: people who spent decades in the city often already have a second home in Palm Beach or Naples, and begin spending more time there. The move isn’t a leap; it’s a gradual shift.
The question is worth asking, and we take it seriously. When clients think about leaving California for purely financial reasons, we talk it through and run the financial scenarios against a myriad of potential “what-ifs,” and then they typically decide to stay.
Making the Decision by Modeling Scenarios
There was a retiring client I worked with who had a home in the Bay Area and strong ties to Florida, where he’d grown up, and his family still lived. The potential income tax savings of moving to Florida were appealing, but the question he kept circling back to was when to sell the Bay Area house. Selling immediately felt like too big a commitment before he knew whether Florida would feel like home long-term. So, he rented the property, moved, and gave himself time. Once it was clear he wasn’t coming back, then he sold.
That sequencing matters because your primary residence qualifies for a capital gains exclusion of up to $500,000 for a married couple, but you generally need to have lived in the home for two of the last five years to claim it. That rule gives you roughly two years after you leave to decide whether to sell. You don’t want to sell too early before you’re ready, because you might want to move back.
To help get that sequencing just right, we use our modeling software to see how selling a property and changing your state of residence would impact your tax rate. We also help you consider:
- Expense comparisons. How does your monthly and annual spend look in the new state versus the Bay Area? We look at what expenses drop, how much positive impact that has on the plan, and whether the numbers hold up under different assumptions.
- The home sale decision. When does it make sense to sell, hold, or rent out the California property? We model the tax implications of each path, including the capital gains exclusion and how rental income affects the overall picture.
- Carrying costs. If you’re holding both properties for a period, we stress-test that scenario. What if the new place needs $100,000 or $200,000 in renovations? What does cash flow look like while both properties are on the books? If you’re buying in the new state, where does that capital come from?
Overall, we’re looking at your long-run tax picture. For clients still in their working years with strong Bay Area or Silicon Valley compensation, the difference between California’s income tax rate and a state with no income tax, compounded over decades, matters significantly. We can show you that impact through the planning, even when the move itself isn’t imminent.
Defining Your Primary Residence
Buying a home in Nevada or Texas and spending part of the year there is not the same thing as establishing legal residency. The bar is higher. California looks at your whole life, not just whether you spent six months living there this year.
To claim a state as your residency, several factors are often considered: do you actually live there? Do you have your gym there? Do you vote there? Are your doctors and community there?
This is why we always loop in your CPA early in the process. Getting the residency piece right isn’t complicated, but it requires intentionality.
Related: Why Your Financial Advisor and CPA Should Be Talking
Your Life Comes First
People like to go through the spreadsheet exercise, and we’re glad they do. Seeing the real numbers, tax savings, home sale timing, and long-run impact on your plan changes the conversation from abstract to concrete, so you can make clear and confident decisions. But your life matters more than any of those factors: where your family is, where your community is, and what you want your day-to-day to look like.
We can model what leaving looks like at every stage, and we can show you what staying looks like too. What we can’t tell you is whether Florida feels like home until you’ve tested it, or whether your grandkids in the Bay Area are reason enough to stay. That part is yours.
Our role is to make sure that whatever you decide, you’re deciding with the full picture in front of you. If leaving California has moved from a passing thought to a real question, that’s exactly when to bring it to us.
And if you’re not yet working with Team Hewins, we invite you to visit our Bay Area office to connect with an advisor. Whether you prefer to meet at our local office or coordinate virtually, we help Bay Area professionals make sense of California’s tax picture and plan your next move with confidence.
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Team Hewins, LLC (“Team Hewins”) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training, and no inference to the contrary should be made. We provide this information with the understanding that we are not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Certain information provided herein is based on third-party sources, which information, although believed to be accurate, has not been independently verified by Team Hewins. Team Hewins assumes no liability for errors and omissions in the information contained herein.