Author Topic: Relocation fails?  (Read 21467 times)

FIPurpose

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Re: Relocation fails?
« Reply #50 on: February 08, 2016, 12:36:43 PM »
It's funny, really. My "failed relocation" was going to CA :). I'm not a sun person (blonde, fair skin, burns easily) but I was going to the foggy bay area. Except In in the no clouds, desert area of the bay. The pay adders have been nice, but I've been plotting my escape since my relocation payback period expired (it would have cost me over $50k, no thanks). Finding cheaper housing (rent went from $1750 alone to half of $1200 in a shared house) have severely sped up my FI plans, and now I'm off to the Republic of Georgia (think Tblisi, not Atlanta) for the Peace Corps to figure out if I want to work when I grow up.

Very jealous! My wife and I are planning on a similar route to join peace corps in about a 1.5 - 2 years. We're currently in our post college, high paying jobs, but I'm thinking that we're close to what we need in investments to live a good life especially if we are going to be paid such as in the Peace Corps.

Whenever we're done with that, I think I'll take whatever job I want to do, with a far lesser weight on how much money the job makes.

lhamo

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Re: Relocation fails?
« Reply #51 on: February 08, 2016, 01:05:24 PM »
Washington is calling you.......

LAGuy

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Re: Relocation fails?
« Reply #52 on: February 08, 2016, 05:46:34 PM »
I have been here more than 5 years so able to take the $250k tax break. My gain is a bit more then that but once I discount for realtor commission and costs I paid to fix things I should come out without having to pay any taxes. I'm in the OC and prices in my hood are in the $500 plus range (1950's 3/2 tract homes about 1000 sf). Most other investments are in tax deferred stuff that I'll get when older and otherwise have a low enough taxable income I don't have to pay Cali or fed income taxes plus no ACA as I use the VA. So no issue keeping g residence in California.
Oh wait ...DoH!  I just realized I'd have to consider the income tax consequences of the money I'd get from the house sale since I'd stash that and rent/travel for a few years before buying another place. So yeah, as LAGuy pointed out, changing residency out of Cali to an income tax free state might be something to do .

Just want to make sure you're clear on the tax situation on a home sale. It sounds like in this post you're thinking that you can roll over the cost basis of your home into a newly purchased home? I'm not totally sure if that's what you mean, but that's a common misconception that's a holdover from the way the tax law used to work back in the 90's and before. The $250,000 tax break on the profit of your home is the ONLY break you'll see. You cannot roll over the basis in your personal abode. If you turn the property into a rental, it then becomes an investment property. You CAN rollover the basis of an investment property when you sell it and purchase a new investment property. However, you will LOSE the ability to claim the $250,000 tax break after 3+ years (you will not have lived in the property for 2 of the past 5 years). So, if you turn it into a rental and THEN decide that being a nomad is for you a few years down the line and sell your house, you'll be paying the full tax bill on your home appreciation.

Regardless of your state of residence, California WILL be wetting their beak on the sale of your home (after your $250,000 break). It was bought there. It was sold there. You owe taxes there. Relocating your state of residence is only so you can avoid CA taxes on your investment income. In California, EVERYTHING is regular income. And you'll pay income tax on it. So if you've got money coming down the line, CA is going to take their cut. It's easy enough to avoid the taxes for the most part if your income is low - California has a progressive tax rate and the "poor" pay very little in taxes. But, once you start trying to get at your tax deferred stuff it can be tough to have enough tax free cap space to work with. That's why in California a 401k is such a great deal: defer Federal taxes, and avoid California taxes entirely by tapping it after you get out!

The Obamacare surcharge I spoke of has nothing to do with your personal healthcare. It's a tax on the incomes of the "rich" to pay for Obamacare. Of course, if you sell your home for a boatload of cash in one year, you've just joined the ranks of the wealthy. Go plug some big capital gain number into Tax Caster. You'll see some separate line item taxes for AMT and Obamacare surcharge. The point is: the low tax basis in your property that you get by holding onto your property is just an illusion. The tax man will get his share down the line when you sell for a really large gain. Once you've hit your $250,000 tax exclusion, the value of home appreciation gains start to look decidedly less impressive.

Bearded Man

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Re: Relocation fails?
« Reply #53 on: February 08, 2016, 06:01:27 PM »
I have been here more than 5 years so able to take the $250k tax break. My gain is a bit more then that but once I discount for realtor commission and costs I paid to fix things I should come out without having to pay any taxes. I'm in the OC and prices in my hood are in the $500 plus range (1950's 3/2 tract homes about 1000 sf). Most other investments are in tax deferred stuff that I'll get when older and otherwise have a low enough taxable income I don't have to pay Cali or fed income taxes plus no ACA as I use the VA. So no issue keeping g residence in California.
Oh wait ...DoH!  I just realized I'd have to consider the income tax consequences of the money I'd get from the house sale since I'd stash that and rent/travel for a few years before buying another place. So yeah, as LAGuy pointed out, changing residency out of Cali to an income tax free state might be something to do .

Just want to make sure you're clear on the tax situation on a home sale. It sounds like in this post you're thinking that you can roll over the cost basis of your home into a newly purchased home? I'm not totally sure if that's what you mean, but that's a common misconception that's a holdover from the way the tax law used to work back in the 90's and before. The $250,000 tax break on the profit of your home is the ONLY break you'll see. You cannot roll over the basis in your personal abode. If you turn the property into a rental, it then becomes an investment property. You CAN rollover the basis of an investment property when you sell it and purchase a new investment property. However, you will LOSE the ability to claim the $250,000 tax break after 3+ years (you will not have lived in the property for 2 of the past 5 years). So, if you turn it into a rental and THEN decide that being a nomad is for you a few years down the line and sell your house, you'll be paying the full tax bill on your home appreciation.

Regardless of your state of residence, California WILL be wetting their beak on the sale of your home (after your $250,000 break). It was bought there. It was sold there. You owe taxes there. Relocating your state of residence is only so you can avoid CA taxes on your investment income. In California, EVERYTHING is regular income. And you'll pay income tax on it. So if you've got money coming down the line, CA is going to take their cut. It's easy enough to avoid the taxes for the most part if your income is low - California has a progressive tax rate and the "poor" pay very little in taxes. But, once you start trying to get at your tax deferred stuff it can be tough to have enough tax free cap space to work with. That's why in California a 401k is such a great deal: defer Federal taxes, and avoid California taxes entirely by tapping it after you get out!

The Obamacare surcharge I spoke of has nothing to do with your personal healthcare. It's a tax on the incomes of the "rich" to pay for Obamacare. Of course, if you sell your home for a boatload of cash in one year, you've just joined the ranks of the wealthy. Go plug some big capital gain number into Tax Caster. You'll see some separate line item taxes for AMT and Obamacare surcharge. The point is: the low tax basis in your property that you get by holding onto your property is just an illusion. The tax man will get his share down the line when you sell for a really large gain. Once you've hit your $250,000 tax exclusion, the value of home appreciation gains start to look decidedly less impressive.

That's not entirely accurate. You can do a 10-31 exchange, rent the new house out for 2 years, then live in it for 5 years, and then sell it without capital gains.

Alternatively, you can move back into it. Non qualifying use can only occur BEFORE the house is used as a primary residence per the IRS code.

LAGuy

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Re: Relocation fails?
« Reply #54 on: February 08, 2016, 06:14:16 PM »
Thanks for the info LA Guy but yes I do understand I can't roll over the old tax basis if I buy a new home (except the one time deal if you sell after 55 that someone mentioned above) and the only tax break I'd get would be the $250k write off when I sold. So if I bought the house for $250k and sold for $500k I shouldn't owe any capital gains taxes. Since that  house sale money isn't taxed as income I don't believe I have to pay additional taxes on the money from that sale.  But I mat be wrong. The house sale money would just be put into something liquid until I decided what to do next I.e. buy a new house or not. Otherwise I have a taxable income under $12k per tear now so even investing the sales profit won't increase it anywhere near a wealthy level.

Sounds good, hopefully I didn't come across too harsh. I'm in a similar situation to you, and I get tired of hearing all the "you'll be sorry if you sell, my Grandpappy bought our place for a 6-pack and a bucket of chicken when Orange County meant orange groves" stories. Just wanted to give you some support that selling is hardly the end of the possibility of your life in So Cal like others often make it out to be. I mean so what if your place were to double from 500k to a million in the next 10 years? That just means you'd have a huge tax bill on that extra $500,000 (you'd owe something like 35% on it). Better to get your $250,000 and put it in stocks/bonds where you have some control over your tax bill from year to year. Anyways, I'll stop derailing your thread now.

Wilson Hall

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Re: Relocation fails?
« Reply #55 on: February 09, 2016, 10:15:57 AM »
It's funny, really. My "failed relocation" was going to CA :). I'm not a sun person (blonde, fair skin, burns easily) but I was going to the foggy bay area. Except In in the no clouds, desert area of the bay. The pay adders have been nice, but I've been plotting my escape since my relocation payback period expired (it would have cost me over $50k, no thanks). Finding cheaper housing (rent went from $1750 alone to half of $1200 in a shared house) have severely sped up my FI plans, and now I'm off to the Republic of Georgia (think Tblisi, not Atlanta) for the Peace Corps to figure out if I want to work when I grow up.

This is one of those things that holds me back from moving to Hawaii! All my damn Norwegian and German heritage isn't cut out for that level of sun exposure. I burn easily enough in California. Part of me wonders if I should give, say, Minnesota a shot. I don't like the cold though. I guess you adapt. :)
I was stationed in Hawaii and while to was beautiful I really disliked living there and transferred asap - to the coast of North Carolina which I loved. Everyone thought I was crazy and didn't get it. Pretty much like when I say I don't like SoCal that much (although I love NorCal).One persons heaven canbe another's hell.

I think I can relate, Spartana. Most of my life has been spent in the southeast or Midwest. Living here in Florida without four true seasons is becoming a drag, and I imagine I'd feel the same way about SoCal or Hawaii (have visited both but never felt an urge to live either place). Part of my extended family lives in North Carolina, which is on my list of eventual relocation spots. The cost of living would be slightly cheaper than here, plus I'd be living closer to not only family but lots of old friends from places where I once lived.

It's terrific that you've been able to FIRE so young in a HCOLA. I'm envious! Having never lived in an expensive region, I'd never be able to retire early if I had to suddenly relocate to one for work.

Exflyboy

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Re: Relocation fails?
« Reply #56 on: February 11, 2016, 11:58:18 AM »
OK so I decided to go for it and sell the place as soon as I get home. Gave myself an extra year to think about it and also travelled around enough during that time to know I'd rather live elsewhere (or travel without a home base). Might be a relocation fail or might not. Time will tell. And of course I can always move back and rent a studio apt (which isOK for me) even if I wouldn't be able to buy or rent another house. Thanks for all the input, stories and suggestions.

Good for you Spartana..:)

I love stories of big life changes.. I look forward to hearing how it all goes!

Johnny Aloha

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Re: Relocation fails?
« Reply #57 on: February 17, 2016, 12:03:36 AM »
Congrats on the decision and best of luck - sounds like you have a great plan!

Misstachio

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Re: Relocation fails?
« Reply #58 on: February 17, 2016, 01:07:20 PM »
I relocated to Michigan for my first job and was pretty excited that I would be making good money in a low COL area.

Then winter happened. Everyone and their mom warned me about lake effect snow but I didn't get how bad it could be till I realized my work expected me to get there pre-dawn even if it was blizzarding outside. No snow days or 'just work from home' days. I'd never driven in snow or ice before and it's terrifying. Abandoned vehicles on the sides of the roads, people spinning out and almost smashing into my poor car, black ice on main thoroughfares.  I moved here right before that massive pileup on interstate 94 last January and now planning to move somewhere you're less likely to die driving to work. Summer's really nice though!

SeattleStache

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Re: Relocation fails?
« Reply #59 on: February 17, 2016, 01:15:05 PM »
You all are making me nervous about my upcoming relocation from Seattle to Los Angeles! I ended up deciding to keep and rent out my Seattle condo as an exit plan just in case.

tj

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Re: Relocation fails?
« Reply #60 on: February 17, 2016, 03:33:34 PM »
You all are making me nervous about my upcoming relocation from Seattle to Los Angeles! I ended up deciding to keep and rent out my Seattle condo as an exit plan just in case.
Well 30 million or so people who live in SoCal seem to love it so you may also. I'm the outlier for sure in that I don't like most of SoCal and flatly refuse to go into LA (less than 40 miles away from my home in Orange County) at all any more. Lived here as a kid/teen and left at 18. Came back 12 years later for a job and to play beach volleyball and have been here ever since (20 something years now). But so many others love it so odds are you may too. But keeping the condo is probably good until you are sure.


Spartana, have you lived in San Diego County at all? When I lived in Dana Point for a year and went down into Encinitas or Carlsbad etc, I felt it was night and day difference from the OC or LA scenes. If I stay in California, I'd move to that area. LA is not remotely appealing to me, but yes a lot of people definitely like it there.

RetiredAt63

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Re: Relocation fails?
« Reply #61 on: February 17, 2016, 04:01:54 PM »
If you want lots of different weather, buy my house  ;-)  We have gone from -23 to +6 and back again in a week.  Then I can see if my move to BC is a "fail".

Seriously, it sounds as if you have lived enough places to have a good idea of what would suit you and what would not.