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.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
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.
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.
Read More
-
Time Is Running Out to Make the Best Tax Moves for 2025Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to CharityFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
If You Do One Boring Task Before Year-End, Make It This OneWho wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
Are You Middle-Class? Here's The Most Tax-Friendly State For Your FamilyTax Tips We found the state with no income tax, low property tax bills, and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
New 2026 Tax Change Could Mean More for Your IRA and 401(k) SavingsRetirement Savings Here's how the new IRS inflation adjustments will increase the contribution limits for your 401(k) and IRA in the new year.
-
What Fed Rate Cuts Mean For Fixed-Income InvestorsThe Fed's rate-cutting campaign has the fixed-income market set for an encore of Q4 2024.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
