A wave of blue states are considering new taxes on top earners and high-net-worth individuals in order to cover cuts in federal aid. California’s one-time billionaire tax proposal may end up on the November ballot, while Maine and Washington have recently passed millionaire taxes.

Jane Ditelberg, chief tax strategist for Northern Trust Wealth Management, said a growing number of clients are asking how to change their tax status as these proposals gain traction. Depending on their state, residents can avoid state-level taxes by creating trusts in states with favorable trust income laws like Delaware.

The most straightforward way to avoid local taxes is to change your domicile, which is easier said than done, according to Jere Doyle of BNY Wealth. The senior estate planning strategist based in Massachusetts, which imposes a millionaire tax, said he has had clients move to New Hampshire and establish residency before selling their businesses.

But clients are often loath to take the steps necessary to establish intent not to return, Doyle said. For instance, moving to Florida may not be enough to avoid Massachusetts taxes if you refuse to sell your Martha’s Vineyard home, he said. 

“Everyone thinks that if they spend 183 days in another state, you’re domiciled in that state. That’s not necessarily true. Each state’s a little bit different,” he said. “You [have] got to change where you vote, where your car is registered, even where your doctors are, what clubs you belong to, golf clubs, country clubs, things like that.”

The tax bill also offered an incentive for business owners and real estate owners to postpone selling their assets. The bill made permanent the qualified opportunity zone program, which allows investors to defer capital gains by rolling them over into a fund that invests in a low-income community.

The opportunity zone funds created under the first Trump administration still exist, but you can only defer the taxes until the end of the year. The new opportunity zones, which have yet to be designated, come with enhanced benefits, especially for investors in rural communities. For instance, if you hold your investment in a qualified rural opportunity fund for five years, your capital gains are reduced by 30% for tax purposes.

But you only have 180 days to roll over your gains, and the new opportunity zone rules don’t take effect until 2027, Ditelberg noted. 

“If you’re thinking of incurring a major gain, you may want to defer it until August or September, instead of doing it in May or June, if you think you would like to take advantage of the opportunity zone deferral,” she said. “I think we’re going to see people who are incurring gains in the second half of this year.”

That said, investors are waiting to see what the new funds entail. Drossman said some clients are reluctant to invest in opportunity zones again after their previous investments underperformed. 

“It’s a classic example of not letting the tax-tail wag the dog because these need to be sound investments,” he said. “Like with all investments, there is an element of risk and return.”