What are the advantages and disadvantages to owning property in California vs. Nevada? People looking to own property at Lake Tahoe often ask this question in trying to decide which side of the lake to purchase property. The following information shows some of the comparisons between owning/living in each state.
- Property taxes in NV are county specific.
- Washoe County assesses property taxes every 5 years, but currently they are several years behind in that process.
- Washoe County taxes are higher than Douglas County. Douglas County real estate is a lot less expensive than Washoe County; Washoe County is closer to CA.
- There is no personal income tax in the state of Nevada. This can be a good thing, especially for retirees from CA who can bring their retirement incomes with them if they become residents. It’s the main difference. It’s like getting a 10% raise for living across the state line. Residency is 183 days a year. Some Californian/Nevadans fudge on this and maintain homes in both states but claim NV as primary residency and vote/register vehicles/bank etc. in NV.
- Generally, I tell people that if they buy a $1,000,000 house in CA, their tax bill will be about $1000/month, while in Douglas County the property tax on a $1,000,000 house is +/- $3500 per year. Assuming an 8% annual increase, it will take 9 years for the DC tax to equal the CA tax, and property taxes are usually just one of several considerations in the equation. The most important thing, of course, is for the client to decide what the most important factors in his personal equation are.
- In California, property tax is reassessed upon transfer at approximately 1.25% of sales price. In Nevada, property taxes are not uniform throughout the state but vary county by county, and are not reassessed upon transfer but on a 5 year schedule. In Douglas County, including the Carson Valley and Tahoe’s East Shore, taxes tend to be significantly lower than in Washoe County, which includes Incline Village and Reno. In recent years the Washoe County rates have become very controversial as they’ve approached those of California.
- Douglas County property tax bills cannot be calculated from the “Total Assessed Value” posted on the Assessor’s website. Among the subjective considerations are view, age of the property and Special Taxes. Sewer is the biggest component of Special Taxes – that’s generally where a property is hooked up directly to county sewer rather than being part of a Gen’l Improvement Dist. Those Special Taxes are billed as part of the prop tax bill. GID members pay for water, sewer and snow removal separately at roughly $135/month. The newer the improvements the higher the property tax bill. View is also a subjective element – in the case of two seemingly identical homes, the one with the better view usually has higher taxes.
- Several years ago the NV legislature capped annual increases at 3% for primary residence. I called the Douglas County Treasurer and confirmed that the increase for second homes and rentals (non owner occupied properties) can be up to 8% in the county.
- Assume you have a sale for $1,000,000 in Nevada and California. Nevada taxes will stay the same through the end of the fiscal year. Typically taxes on Incline Village properties run .6 of 1% of the value of the home. Taxes on a $1,000,000 is approximately $6,000. The yearly cap on taxes is 3%. Taxes on the sale of a $1,000,000 in CA is $12,500. It will take over 30 years for property taxes to reach $12,500 plus all the savings you have over the 30 years. I believe your taxes go up a minimal amount each year.
- As a resident, we have no state income tax if you earn your money in Nevada or if you have passive income even if it comes from California. If you are a resident of Nevada and are employed in California you will be taxed by California.
- My experience has shown me that if it is Primary than the tax advantages can be more substantial. If it is a second home and they already live in California than not as big a deal UNLESS they plan to retire in that home to protect their assets than Nevada is a better option.
|Estimate Property Tax||1.25% of purchase price||Taxable value x 35% = assessed value x tax rate = property taxes due|
|State Sales Tax||8.25% (food and prescription drugs exempt. Tax varies according to locality. Can be as high as 10.5%)||6.85% until 2011 (food and prescription drugs exempt). Counties may add up to .875% additional.|
|Gasoline Tax||46.6 cents/gallon||33.1 cents/gallon|
|Diesel Fuel Tax||46.6 cents/gallon||28.6 cents/gallon|
|Cigarette Tax||37 cents/pack of 20 plus an additional surcharge of 50 cents per pack, bringing the total to 87 cents.||80 cents/pack of 20|
|Personal Income Taxes||Low 1.25%; High 10.55%. For 2010 CA has enacted a 0.25% point increase in each of state’s income tax brackets. Tax credit for dependents was reduced from $309 to $98. For info on taxes for military personnel, click here.
Income Brackets: ** Lowest $7,168; Highest $1 mil.
|No state income tax|
|Retirement Income||Social Security and Railroad Retirement benefits are exempt. There is a 2.5% tax on early distributions and qualified pensions. All private, local, state and federal pensions are fully taxed.||Not taxed|
|Inheritance and Estate Taxes||There is no inheritance tax. However, there is a limited California estate tax related to federal estate tax collection.||There is no inheritance tax and a limited estate tax related to federal estate tax collection.|
|Real Property Example||Taxable Value $ 1,000,000 x 1.25%
Property Tax due $12,500
|Taxable Value $ 1,000,000 x 35%
Assessed Value 350,000 x $ .0298
Property Tax due $10,043.00
California Versus Nevada LLC
from San Diego Business Law Firm
A limited liability company, better known as “LLC”, is a flexible business entity. It gives you the asset protection characteristics of a corporation, but with less formality. From a tax perspective, the LLC is taxes most often as a partnership. This avoids the double taxation issues that arise with a traditional corporation.
After deciding to form an LLC, the next issue is picking the state in which to do the formation. For people living in California, there is a temptation to form the entity in Nevada. Why? Well, it usually comes down to tax issues. California taxes everything including a LLC. Nevada, on the other hand, provides a much better tax situation.
So, when we ask about the merits of a California versus Nevada LLC, the answer is Nevada is the best jurisdiction to pick, right? It might appear so at first glance, but there are problems with this approach. You will often read that you can form a business entity in any state you desire. This is true, but you probably should not.
Let’s assume I live in Tahoe City, CA and have a business idea. I decide to go ahead and form a Nevada LLC. Once created, I launch my business in Tahoe City, CA. I open an office in my home. I meet with clients in the office. I take calls in Tahoe City, CA. I receive orders in Tahoe City, CA. Basically, all the business activities are taking place in Tahoe City, CA.
This is a common scenario, but problematic. Since the day-to-day activities of my business are taking place in Tahoe City, CA, California state agencies are going to view me as a California business. This means I will have to register with the Secretary of State as a foreign LLC since my entity is based in Nevada. I will also have to pay California state taxes and other fees.
The end result of all of this is that I end up paying all the fees I would have by originally forming the LLC in California. On top of that, I will also be paying all the Nevada fees. Given this scenario, the benefits of using a Nevada LLC are lost and I actually end up in a worse situation.
Most books and websites discussing the creation of business entities are painfully inadequate. Make sure you understand the complete picture before choosing where to originate your LLC or any other business entity.
Check out this video by CBS News.
For more detailed info on operating your business in the greater Reno-Tahoe area, click here.