This Tax Overhaul Will Be Final Straw for Many Californians
Get ready to see a lot of moving vans headed out of high-tax states, like California, New Jersey and Maryland. But for people in high-tax states, there are a few things they can try (other than moving).


As a financial adviser, one thing we regularly address with clients is the tax burden that hits higher-income individuals, and the savings they would rack up if they moved to another state. Among our clients in California, we have seen a mass exodus of higher-wage earners and retirees leaving the state … and the tax overhaul that passed Congress on Wednesday, Dec. 20, 2017, will cause even more to leave.
California has a highly progressive income tax structure, and personal income taxes make up the vast majority of the state’s budget. With a top tax rate of 13.3%, it has the highest state tax rate in the nation.
Over the years we’ve personally witnessed many of our clients leave California to more tax-friendly states, such as Nevada, Texas and Arizona. And we’re about to see many more pack their bags.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.

Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
One California family’s tax tale: A 35% increase
As the tax bill was being finalized in Congress, I received a call from a couple who wanted to see how this new tax bill would impact their family. This couple had been lifelong California residents, retiring a few years ago. They own two homes in California: one in the Palm Springs area and another in the Lake Tahoe region.
With a retirement income of roughly $200,000, made up of Social Security, a small pension, IRA distributions and dividends, they are hit with California taxes of about 10%. Unlike the federal government, where capital gains and dividends are taxed at more favorable rates, California hits all taxable income with the same high tax rates.
In addition to the high income taxes, they pay fairly substantial property taxes on their homes. It’s not that property tax rates are all that high in California (they are about 1.25% of the value), it’s that home prices there are astronomical.
One slight relief this couple has had (as have many California residents) has been their ability to deduct their state income and property taxes against their federal income taxes. This has effectively reduced the cost of their total taxes by 25%. Given that their combined income and property taxes is about $35,000 per year, their effective rate had been approximately $26,000 per year.
While the new tax bill awaiting President Trump’s signature may reduce their federal income taxes a bit, their effective California tax bills will increase by $9,000. That’s a 35% increase in taxes for the privilege of living in California.
Say hello to Texas
As I went through the numbers with this couple, they told me this was the last push they needed to leave the state. They already have one child living in Austin, Texas, and they told me that they would be selling one of their California homes and buying a primary residence in Texas. From our calculations, not only will this save them a ton in income taxes, but their overall cost of living will be much lower as well.
If California and other high-income tax states don’t do something to address this issues, we’ll see many more families flee to lower-taxed ones. Unfortunately, the federal government has made it much less appealing to pay state income taxes.
Things people in high-tax-states can do
But if you live in a high-income-tax state and you don’t plan to leave, here are few things you can do to minimize your tax burden for next year.
Because that the deductibility of state, local and property taxes will be capped at $10,000 starting in 2018:
- Pay your April property taxes in December 2017, if your combined state income taxes and property taxes for 2018 will exceed $10,000.
- Make an extra mortgage payment. If you itemize, then it could make sense to make your January 2018 mortgage payment in 2017.
- Make 2018 charitable contributions in 2017, if your itemized deductions — less state income taxes — are under $24,000 if you’re married or $12,000 if you’re single.
- Other deductions have been repealed as well, such as alimony, tax-preparation fees and casualty losses.
- Keep in mind: state and local taxes can be added back under alternative minimum tax (AMT) for individuals; however, receiving any deductions is better than losing them altogether next year.
Take advantage of these deductions while you still can.
More changes are on the horizon that may directly impact you. The tax overhaul bill may very well cause major ripples in structural changes to Medicare and Social Security. And although I am not a tax adviser myself, I encourage my clients to meet with a tax professional to think through decisions before year’s end.
It’s always a good idea to review your investment portfolios every year. With major changes to the tax code on the horizon, now is a good time to make sure your financial strategies are sound and your portfolio is balanced to your best interest.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Scott Hanson, CFP, answers your questions on a variety of topics and also co-hosts a weekly call-in radio program. Visit HansonMcClain.com to ask a question or to hear his show. Follow him on Twitter at @scotthansoncfp.
-
Dow Adds 238 Points as UnitedHealth, Caterpillar Pop: Stock Market Today
The lack of a September jobs report didn't seem to worry market participants, with the data delayed due to the ongoing government shutdown.
-
Kiplinger Quiz of the Week: Test Yourself on the Week's Stories
Quiz The Nike stock price, Amazon's settlement and the shutdown were all covered by Kiplinger this week — but why? How much do you know about the week's financial news?
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term Plan
The new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)
A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold Shines
The third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial Adviser
If you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.
-
Eight Ways to Stay Safe When Making Cashless Payments
Consumers are ditching cash for the convenience of digital payments, but fraudsters are right behind you. Just a few simple steps can help you stay safe.
-
I'm a Financial Planner and a Parent: Here Are Five Money Habits Every Young Family Should Have
When children are young, it can be hard to meet immediate costs, let alone save for the future, but these five habits can help build lasting financial security.
-
Dealing With a Bad HOA Board? This Book Could Be Your Battle Plan
'Bad HOA' by Luke Carlson empowers homeowners to push back against unfairness, offering advice on dealing with challenging homeowners associations (HOAs).
-
Advisers Face a Fiduciary Challenge When Discussing Alternatives to Trump Accounts
While Trump Accounts offer some benefits for early savings, investment advisers need to be cautious when recommending alternatives like 529 plans or Roth IRAs, as those suggestions could create fiduciary conflicts.