Nevada has no tax on income of any kind -- including retirement income -- and does not impose an estate tax. This is a far cry from California, where the highest earners pay 13.3 percent of their income to the state on top of federal taxes. While at this point California also doesn’t collect an estate tax, there have been talks of instituting something similar in recent years.

Establishing residency in Nevada requires, at the very least, living in the state for at least 183 days out of the year. To attain “domiciled” status, you’ll need to pass a “Close Connection Test,” which looks into what ties you have with Nevada. A few of these determinants include: 

• Where you’re registered to vote
• Where you claim your homeowners exemption
• Where you received your driver’s license
• Any social organization affiliations
• Where you own a cemetery plot

The property tax situation is slightly more convoluted than the income tax environment, but overall, purchasing a vacation rental investment property is still more advantageous in Nevada than California -- if you know where to buy.

In California, property taxes are reassessed every time a transfer occurs, at 1.25% of the purchase price. In Nevada, property taxes are established by the county, and rates are reassessed every five years throughout the state. There are only two Nevada counties that border Lake Tahoe: Washoe County and Douglas County.

Washoe County extends from the California border in the north down to about Marlette Lake on the east side of Lake Tahoe. Here, in neighborhoods like Incline Village, you’ll see high real estate prices, as well as increasingly higher property taxes that are currently verging close to those seen across the border in California.

In South Lake Tahoe, the situation is different, and the benefits of living in Nevada (and renting out your home here) start to become apparent. Douglas County’s current average property tax rate is .719% of the assessed home value. So a $1M home in South Lake Tahoe would see annual property taxes of $7,190. That same home in California would result in an annual property tax of $12,250 - more than 70% higher.

So from a tax standpoint, the savings generated from lower property taxes in South Lake Tahoe, as well as paying zero taxes on your rental income if you live in Nevada for 183 days or more per year, are certainly enticing.

However, as we mentioned above, taxes are only one part of the decision-making process regarding where to buy a vacation home in Lake Tahoe. Other non-financial considerations include:

• Where you enjoy spending the most time (on the shore or in the mountains?)
• How important is accessibility? What is the traffic situation like on the way to the home?
• How healthy is the vacation rental market in that neighborhood?
• How big is the inventory of homes in that neighborhood, and how will that affect appreciation?