Hello, Suppose I sell a stock for a capital gain this week in a state that taxes you on capital gains. But then I move to another state that has no capital gains tax, and live there for the rest of the year. Do I still have to pay the capital gains tax (because I was living in the tax state at the time of sale)? There is some sort of six-month-plus-one-day rule to determine which state is your tax state. I would be living in the new state for 11 months and perhaps longer... so it's not like I would be pushing the limits on the shortest amount of time possible to live in the state. It's the timing of the sale of the stock that has me concerned. I want to sell the stock before moving, but I would like to (legally) not have to pay the capital gains tax. I'm hoping I can sell the stock, move to the new state in February, and then not have to pay the tax. I'm not sure if the timing of the sale of the stock matters. I almost think it would not matter. A person moving from a non-tax state to a tax state could theoretically sell a ton of stock on Jan 2, then move to the tax state for 363 days. Even though he/she sold the stock immediately prior to moving, the tax state would want to claim tax on the sale, since the person lived in the new tax state for 363 days, Does anybody know what the rules are on this? (P.S. this is a non-trivial amount of tax).
Sounds like a problem. What I would do is figure out when is the soonest that you can sell the tax and not get taxed. Then, if there are options available on the stock, collar the stock (sell an ATM call and use the proceeds to buy an ATM put). Buy the longest duration possible to protect against dividend-driven early assignment in case the stock keeps rallying higher. If the stock is not a hard-to-borrow stock, then you'll likely even have a small net premium on the options. The put will protect your downside while the call will limit any upside so you'll effectively lock in your gains until you can sell the stock later.
1. Be extremely careful about any tax advice you get here - as you've said in your previous posts you use an accountanr - ASK THEM 2. You've had constructive sale problems showcased to you in previous posts - ASK YOUR ACCOUNTANT 3. If you need to exit a position and you stay in it for taxes that's questionable and many states will be altering their tax laws this year because of the changes in the federal act so - ASK YOUR ACCOUNTANT 4.It may end up depending on the state you live in now and the state you are moving to - some adjoining states have agreements some don't and your move may not be to adjoining state so - ASK YOUR ACCOUNTANT. I live in Illinois and if you moved here from Iowa it could be treated differently than if you moved from Wisconsin. 5. You will get a year end 1099 with you(then)address on it - what is the likelihood that you'll be subject to a state audit? Tiny, likelihood is smaller than tiny, but in your case near certainty because you asked. 6. It's only January and may have some offsetting loses as the year progresses. Your 1099 may not end showing a gain at all and "get this" the events occur in two different states. Again a tiny likelihood you'll be subject to a state audit, but you've already assured that. 7. If it's a material gain, as you state, and you use our advice as opposed to your accountant's you get entered into the Darwin pool for 2018. Make the trade that makes the most sense - be careful about the tax implications of hedging and good luck with your move.
As ajacobson stressed, ask your accountant beforehand. No matter what scheme you choose, if your accountant does go along, or won't put his name on your tax return, you are screwed. I once asked my accountant about state taxes if you live in two different states during a year, and she stated that the common belief about living in one state for 6 months and a day is incorrect. She stated that if you live in multiple states for any significant part of the year, you need to file a partial return in each state. She also stated that different states are more or less aggressive about enforcing this law -- Connecticut not too aggressive, but New York will go after you for relatively trivial amounts.