Although I've lived here for 10 years and I call Nashville home, I am not a native.
It's becoming rarer, but if you meet a person that was born in Nashville, you probably found out within about 5 minutes of meeting them.
They'll tell you all about how the skyline is changed, property prices are increasing, and how all the suburban communities are becoming flooded with out-of-staters.
They're not wrong about all the changes that have happened to their beloved city over the past 2-3 decades. I read an article recently that estimated around 86 people are still moving to Nashville-- every day! In 2020, this yielded around a 2% increase in the total population of the area.
So why the sudden influx?
First of all, let's make sure we don't ignore the obvious: Nashville is a pretty awesome city. Great weather, tons of music and sports events, good food, great people, and just a good time.
These are great reasons to move to this awesome city. But I think the tax advantages of moving to a city like Nashville are the kicker that is driving more and more people into town.
Not only does Nashville have zero state income tax and low property taxes compared to other cities and states around the country, but home values are also relatively low. Your money goes farther here.
Compare the 4-10.9% state income tax for New York residents to the 0% state income tax here in Tennessee. If you keep the same level of income bet you had a New York and relocate to Nashville, most people automatically experience a roughly 6% to 7% boost in their disposable income.
Not to mention local taxes that are also assessed within certain municipalities and districts throughout the state of New York (I'm of course using New York for our example but many states work this way).
Changes in tax legislation have recently pushed people away from some of the high tax states...
Some states are more SALTy than the rest.
No, I don’t mean too much salt on your french fries I’m talking about something known as the state and local income taxes and their deduction.
Tax filers in high-income states such as New York and California receive a tax deduction on their federal return for taxes paid at the state level if they itemize their deductions. Historically they have received a SALT deduction for any amount of state and local income tax as well as property tax paid in their home state.
When the Tax Cuts and Jobs Act was passed in 2017 however, a cap was imposed on these SALT deductions. No longer could highly taxed state residents deduct an unlimited amount of these state taxes on their federal return. This new SALT cap imposed a $10,000 limit on the deduction amount.
So now we have a situation where people in states like New York, California, and Illinois are (still) paying an extreme amount of state income tax, sales tax, and real estate tax but they are not getting a federal deduction for the full amount paid. Effectively, they are getting double taxed.
How does that sound?
As a result, people from these states are moving in mass quantities to areas like Nashville, Florida, North Carolina, and other places that aren't as punitive.
The situation is so bad that Democratic leaders in these high-tax states are calling for a repeal of the SALT cap.
They are taking notice that highly affluent and middle-class Americans are selling their homes and leaving to avoid the situation.
What might be the consequence?
If something isn’t done soon the mass exodus will continue and lower-income households that do not desire or can’t afford to relocate will be left holding the bag. Taxes will likely be further increased to make up for the revenue lost as a result of thousands of taxpaying households relocating to more tax-friendly areas of the country.
So if you live in New York and are thinking about relocating for retirement (mom and dad), it makes a lot of sense.