For the purposes of this question, suppose:
- I'm moving from a state with 0% capital gains tax to a state with 5.25% capital gains tax;
- All capital gains are long-term;
- I have some mutual funds that I will probably sell in the next year or two;
- My marginal tax rate will only increase in the near future.
My thinking was--I'll have to "pay" taxes on the gains on my mutual fund holdings at some point, so it makes sense to sell them now when the (state) capital gains tax is 0% (and possibly re-buy the same mutual funds after the move) as opposed to holding on to the funds and paying 5.25% on what I've earned so far plus what I will earn in the next year or two.
I've had people tell me that my thinking is flawed, but I don't see any mistakes. Are there any reasons I shouldn't sell the mutual funds before the move?