State Tax Comparison 2026: Best States for Investors & Retirees
Compare state income taxes and capital gains taxes across all 50 states. Find the best states for retirees and investors including Florida, Texas, Nevada, and more.
State Tax Overview
Where you live significantly impacts your investment returns. State taxes can add 0% to over 13% to your tax burden on investment income. For retirees living on investments and Social Security, choosing the right state can save tens of thousands of dollars annually.
Unlike federal tax, which is uniform nationwide, state tax varies dramatically. Some states have no income tax at all. Others tax investment income at rates exceeding 10%. Understanding these differences is essential for tax planning.
Types of State Taxes Affecting Investors
| Tax Type | What It Affects | Range |
|---|---|---|
| Income tax | Wages, interest, short-term gains | 0% - 13.3% |
| Capital gains tax | Investment profits | 0% - 13.3% |
| Dividend/interest tax | Investment income | 0% - 13.3% |
| Estate/inheritance tax | Wealth transfer at death | 0% - 20% |
| Property tax | Real estate holdings | 0.28% - 2.49% |
The Combined Tax Picture
For a high-income investor selling $100,000 of long-term gains:
| State | Federal (23.8%) | State Tax | Total Tax | After-Tax |
|---|---|---|---|---|
| Florida | $23,800 | $0 | $23,800 | $76,200 |
| Texas | $23,800 | $0 | $23,800 | $76,200 |
| Colorado | $23,800 | $4,400 | $28,200 | $71,800 |
| New York (NYC) | $23,800 | $12,700 | $36,500 | $63,500 |
| California | $23,800 | $13,300 | $37,100 | $62,900 |
The difference between Florida and California? $13,300 on just one sale. Over a retirement, this compounds dramatically.
States With No Income Tax
Nine states have no state income tax, making them attractive for investors and retirees.
The No-Tax Nine
| State | Income Tax | Capital Gains | Key Considerations |
|---|---|---|---|
| Alaska | None | None | High cost of living, cold climate |
| Florida | None | None | No estate tax, popular retirement destination |
| Nevada | None | None | No corporate tax, Las Vegas/Reno options |
| New Hampshire | None* | None | *Interest/dividend tax phasing out by 2027 |
| South Dakota | None | None | Strong trust laws, no estate tax |
| Tennessee | None | None | Previously had Hall Tax on dividends (repealed) |
| Texas | None | None | High property taxes, no corporate income tax |
| Washington | None | 7%* | *7% on gains over $250K (new law) |
| Wyoming | None | None | Strong asset protection, low population |
Trade-offs to Consider
No-income-tax states often make up revenue elsewhere:
- Sales tax: Texas and Tennessee have high sales taxes (8-10% combined)
- Property tax: Texas has some of the highest property taxes in the nation
- Limited services: Some states offer fewer public services
- Climate/lifestyle: Not every state suits every person
Annual Savings Example
Investor with $150,000 in annual investment income:
| Scenario | California | Florida | Annual Savings |
|---|---|---|---|
| Capital gains ($100K) | $13,300 | $0 | $13,300 |
| Dividends ($50K) | $6,650 | $0 | $6,650 |
| Total state tax | $19,950 | $0 | $19,950/year |
Over a 25-year retirement, that's nearly $500,000 in savings, not counting growth on reinvested tax savings.
Capital Gains Tax by State
Most states tax capital gains as ordinary income. A few have special treatment.
States With Preferential Capital Gains Treatment
| State | Treatment | Details |
|---|---|---|
| Arizona | 25% exclusion | Long-term gains get 25% deduction |
| Arkansas | 50% exclusion | For gains on assets held 1+ years |
| Montana | 2% credit | Credit for capital gains from certain assets |
| New Mexico | 50% deduction | For long-term gains, with limits |
| South Carolina | 44% exclusion | Effective max rate of 3.9% |
| Wisconsin | 30% exclusion | For farm and business assets held 1+ years |
States Taxing Capital Gains as Ordinary Income
| Rate Range | States |
|---|---|
| 10%+ top rate | California (13.3%), New York (10.9%), New Jersey (10.75%), Oregon (9.9%) |
| 7-9.9% | Minnesota (9.85%), Vermont (8.75%), Iowa (8.53%), DC (8.5%) |
| 5-6.9% | Massachusetts (5%), Nebraska (6.84%), Maryland (5.75%) |
| Under 5% | Arizona (2.5%), North Dakota (2.9%), Pennsylvania (3.07%) |
Best States for Retirees
Retirement income has special treatment in many states. Here are the best options:
Top 10 States for Retirement Tax
| Rank | State | Income Tax | Social Security | Pension/401(k) | Estate Tax |
|---|---|---|---|---|---|
| 1 | Wyoming | None | Not taxed | Not taxed | None |
| 2 | South Dakota | None | Not taxed | Not taxed | None |
| 3 | Florida | None | Not taxed | Not taxed | None |
| 4 | Alaska | None | Not taxed | Not taxed | None |
| 5 | Nevada | None | Not taxed | Not taxed | None |
| 6 | Tennessee | None | Not taxed | Not taxed | None |
| 7 | Texas | None | Not taxed | Not taxed | None |
| 8 | New Hampshire | None | Not taxed | Not taxed | None |
| 9 | Pennsylvania | 3.07% | Not taxed | Not taxed | 4.5-15%* |
| 10 | Mississippi | 5% | Not taxed | Not taxed | None |
*Pennsylvania has inheritance tax, not estate tax
Social Security Tax Treatment by State
| Treatment | States | Number |
|---|---|---|
| Fully exempt | Most states including all no-income-tax states | 41 |
| Partially taxed | CO, CT, KS, MN, MO, MT, NE, NM, RI, UT, VT, WV | 12 |
Best States for Investors
For active investors with significant capital gains and investment income:
Top States for High-Net-Worth Investors
| State | Capital Gains Rate | Dividend Rate | Estate Tax | Overall Grade |
|---|---|---|---|---|
| Florida | 0% | 0% | None | A+ |
| Texas | 0% | 0% | None | A+ |
| Nevada | 0% | 0% | None | A+ |
| Wyoming | 0% | 0% | None | A+ |
| South Dakota | 0% | 0% | None | A+ |
| Tennessee | 0% | 0% | None | A |
| South Carolina | 3.9% effective | 7% | None | B+ |
| Arizona | 1.9% effective | 2.5% | None | B+ |
States to Avoid for Investors
| State | Top Rate | Estate Tax | Other Issues |
|---|---|---|---|
| California | 13.3% | None | Exit tax discussions, high cost |
| New York | 10.9% | Yes (3.06-16%) | NYC adds 3.9% |
| New Jersey | 10.75% | Yes (up to 16%) | High property tax |
| Oregon | 9.9% | Yes (10-16%) | No sales tax offset |
| Minnesota | 9.85% | Yes (13-16%) | Taxes Social Security |
High-Tax States to Consider
Sometimes high-tax states make sense despite the burden.
When High-Tax States Work
- Career opportunities: Silicon Valley, Wall Street pay premiums
- Family ties: Some things matter more than money
- Business requirements: Certain industries cluster geographically
- Quality of life: Cultural amenities, climate preferences
- Healthcare: Access to specialized medical care
Tax Mitigation Strategies in High-Tax States
| Strategy | How It Works | Savings Potential |
|---|---|---|
| Tax-exempt bonds | In-state muni bonds avoid state tax | Full state tax on bond income |
| Retirement accounts | Max 401(k), IRA contributions | Defer state tax for decades |
| Charitable giving | State deductions for donations | Up to 13.3% on donated amounts |
| Opportunity zones | Defer and reduce gains | Significant for large gains |
| Dual residency planning | Split time strategically | Complex, requires careful planning |
Relocation Tax Planning
Moving to a low-tax state requires careful planning to maximize benefits.
Establishing Residency
To change tax residency, you typically need to:
- Physical presence: Spend majority of year in new state
- Intent to remain: Make new state your permanent home
- Cut ties: Change driver's license, voter registration, bank accounts
- Document everything: Keep records of your location
Common Relocation Mistakes
| Mistake | Consequence | Prevention |
|---|---|---|
| Keeping old state home | May still be considered resident | Sell or clearly rent out |
| Spending too much time in old state | Residency audit risk | Track days carefully |
| Not changing documents | Evidence of old residency | Update everything promptly |
| Moving after large gain | Old state taxes the gain | Move first, then sell |
| Underestimating audits | California, NY audit aggressively | Document residency thoroughly |
Timing Large Events
If planning to relocate, consider timing:
- Stock sales: Wait until after establishing new residency
- Business sales: Complete move before closing
- Retirement distributions: Take in new state
- IPO/liquidity events: Plan move well in advance
Complete State Comparison
All 50 States Quick Reference
| State | Top Income Tax | Capital Gains | Estate Tax |
|---|---|---|---|
| Alabama | 5% | 5% | No |
| Alaska | 0% | 0% | No |
| Arizona | 2.5% | 1.9% | No |
| Arkansas | 4.4% | 2.2% | No |
| California | 13.3% | 13.3% | No |
| Colorado | 4.4% | 4.4% | No |
| Connecticut | 6.99% | 6.99% | Yes |
| Delaware | 6.6% | 6.6% | No |
| Florida | 0% | 0% | No |
| Georgia | 5.49% | 5.49% | No |
| Hawaii | 11% | 7.25% | Yes |
| Idaho | 5.8% | 5.8% | No |
| Illinois | 4.95% | 4.95% | Yes |
| Indiana | 3.05% | 3.05% | No |
| Iowa | 5.7% | 5.7% | No |
| Kansas | 5.7% | 5.7% | No |
| Kentucky | 4% | 4% | No |
| Louisiana | 4.25% | 4.25% | No |
| Maine | 7.15% | 7.15% | Yes |
| Maryland | 5.75% | 5.75% | Yes |
| Massachusetts | 5% | 9%* | Yes |
| Michigan | 4.25% | 4.25% | No |
| Minnesota | 9.85% | 9.85% | Yes |
| Mississippi | 5% | 5% | No |
| Missouri | 4.8% | 4.8% | No |
| Montana | 5.9% | 4.1% | No |
| Nebraska | 5.84% | 5.84% | No |
| Nevada | 0% | 0% | No |
| New Hampshire | 0% | 0% | No |
| New Jersey | 10.75% | 10.75% | Yes |
| New Mexico | 5.9% | 2.95% | No |
| New York | 10.9% | 10.9% | Yes |
| North Carolina | 4.5% | 4.5% | No |
| North Dakota | 2.5% | 2.5% | No |
| Ohio | 3.5% | 3.5% | No |
| Oklahoma | 4.75% | 4.75% | No |
| Oregon | 9.9% | 9.9% | Yes |
| Pennsylvania | 3.07% | 3.07% | Inheritance* |
| Rhode Island | 5.99% | 5.99% | Yes |
| South Carolina | 6.2% | 3.5% | No |
| South Dakota | 0% | 0% | No |
| Tennessee | 0% | 0% | No |
| Texas | 0% | 0% | No |
| Utah | 4.65% | 4.65% | No |
| Vermont | 8.75% | 8.75% | Yes |
| Virginia | 5.75% | 5.75% | No |
| Washington | 0% | 7%** | Yes |
| West Virginia | 5.12% | 5.12% | No |
| Wisconsin | 7.65% | 5.4% | No |
| Wyoming | 0% | 0% | No |
*Massachusetts: 4% surtax on income over $1M
**Washington: 7% on capital gains over $250,000
State taxes are a significant and controllable expense for investors. While you shouldn't move solely for tax reasons, understanding these differences helps you make informed decisions about where to live, especially in retirement. For those with flexibility, the tax savings from living in Florida, Texas, or other no-income-tax states can be life-changing.
This is educational content, not tax advice. State tax laws change frequently. Consult a qualified tax professional familiar with your specific state situation before making relocation decisions.
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