The painful stuff:

• HSAs aren’t tax-free in CA. Contributions aren’t deductible and earnings remain taxable.

• No state tax deduction for 529 contributions.

• California taxes long-term capital gains as ordinary income. High earners can face 20% federal + 3.8% NIIT + 13.3% CA = 37.1%+ on LTCGs.

• California does not fully conform to federal REPS rules. Many of the state-tax benefits of real estate professional status disappear.

• Proposition 19 largely eliminated the ability to pass rental, vacation, and commercial real estate to children without property tax reassessment.

The bright spots:

• Proposition 19 also allows many homeowners age 55+ to transfer their low Prop 13 property tax basis to a replacement primary residence.

• Capital losses offset capital gains at both the federal and state level and carry forward indefinitely. Makes tax-aware long/short especially powerful for CA residents.

• Ordinary losses from tax-aware hedge funds can offset income at both the federal and state level, creating enormous tax alpha for high earners.

• Passive real estate remains highly tax-efficient because depreciation and 1031 exchanges are generally recognized by both California and the IRS.

• No bugs, humidity, hurricanes, tornados, or snow. And you get the beach + surfing 😃