The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)
Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
After spending time scrutinizing financial markets and Fed rates, the last thing you probably want to think about is how much the tax man will take from your earnings.
But tax planning while investing is crucial. Not only can you minimize federal taxes through strategies like tax-loss harvesting, but if you live in a low-tax state, you might reduce investment taxes on your passive income.
So here are two states that could give investors a “tax-friendly” edge in the marketplace — should you decide to move.
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The most tax-friendly states for investing
To determine the “most tax-friendly states for investing,” Kiplinger first ranked each state based on three key factors.
First, only states that don’t tax capital gains, income taxes, interest, or dividends were considered. Of those eight, Kiplinger selected the two states with the lowest effective property tax rates.
Property taxes were based on the most recent data provided by ATTOM Data Solutions, which surveyed property tax rates from 84.9 million U.S. single-family homes.
Lastly, state and local sales tax rates were referenced from the most recent dataset issued by the Tax Foundation.
But no matter where you move, federal income taxes will still apply.
Best states for investors who hate paying taxes in 2025
Nevada and Tennessee.
Many types of state taxes are either low or nonexistent in Tennessee and Nevada, making these two the most tax-friendly for investing in 2025.
Here are just a few reasons why Nevada and Tennessee topped our list:
- There are no individual income taxes in either state. (That includes wages, retirement distributions, and investment income on capital gains, interest, or dividends.)
- Property taxes are about half the national average of .90%. Both Tennessee and Nevada have relatively low effective property tax rates of .44% and .48%, respectively, according to ATTOM.
- Neither Tennessee nor Nevada has state-level inheritance or estate taxes. Without paying so-called state “death taxes,” you could pass on more investment wealth to your heirs.
Best low-tax states to invest in real estate, rental property, and other investment buys
However, choosing the state that offers the most potential tax benefit may depend on the type of investments you hold. For example, many types of investments generally reap similar state tax benefits regardless of whether you live in Tennessee or Nevada.
So, when it comes to naming the “most tax-friendly states for investing,” Kiplinger selected two primary types of investments: real estate and collectibles.
Your investment choices and the duration of those investments might lead you to prefer one state over another as the most "tax-friendly" for your specific investment strategy.
For instance:
- Tennessee could offer more state tax benefits to landlords than Nevada. Not only does Tennessee have a slightly lower property tax rate compared to Nevada, but the Volunteer State also has a lower overall median property tax bill of $1,695 (Nevada’s is $2,660), as reported by Kiplinger.
- This means you might save on state property taxes when renting out long-term properties (more than 180 days). (Depending on the specific geographic area, of course.)
- However, Tennessee is also one of the states with the highest sales tax rates in the U.S. Investors could pay up to 9.75% in combined state and local sales taxes, per the Tax Foundation. This includes large investments such as boats, cars, short-term rentals, and even some essential living expenses, like clothing.
- On the flip side, Nevada's maximum sales tax rate is 8.375%. This translates to potential savings of up to $1.37 per $100 spent on purchases in Nevada compared to those in Tennessee. Plus, Nevada has no statewide short-term rental tax, meaning state taxes on vacation rentals can be lower compared to Tennessee.*
*Note: While there is no statewide short-term rental tax in Nevada, counties and cities may enact local tax rates and fees.
Is Nevada or Tennessee a good place to live?
Before you pack your bags for a move to Tennessee or Nevada, there are other important factors to consider.
Kiplinger’s ranking considered state tax burdens for investors; however, you may want to research other key considerations like cost of living, crime rates, and political climate before relocating.
- For example, Nevada is generally considered a “business-friendly” environment, with no corporate income tax rate, which may appeal to entrepreneurs. At the same time, the state faces challenges in healthcare access, quality, and outcomes. Nevada recently ranked 46th in a national report released by The Commonwealth Fund.
- Meanwhile, Tennessee has a generally low cost of groceries, housing, and transportation compared to national averages. However, the Volunteer State has struggled with higher-than-average poverty rates in recent years, according to the U.S. Census Bureau.
Of course, you can live in your home state and buy an investment (like property) in another. But if you do that, you’ll likely need to file two state tax returns, which could increase the cost of your tax return and make your financial situation more complicated.
Overall, it’s important to consider your unique financial and lifestyle circumstances when planning a move to another state.
Because even if Nevada or Tennessee is the most tax-friendly for your investments, if those places don’t work for your family, your home state may be the perfect fit after all.
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