Arizona and California, weighed as two operating environments.
Not which state is better — the wrong question. This instrument weighs both environments
on the same five decision lenses and shows which coordination priorities change when the
environment does. Same reasoning every state is read through; here, side by side.
Each lens turns a tax environment into a household decision.
A dashed row means the two environments read the same on that lens; a solid row means they differ.
low
Rate pressureHow much does the state erode each realized gain?
severe
ArizonaThe state takes 1.88% of every long-term gain at the top — low drag on what a realized return keeps.
CaliforniaThe state takes 13.3% of every long-term gain at the top — severe drag on what a realized return keeps.
none
Estate exposureDoes the state tax the estate below the federal threshold, and how steeply?
none
ArizonaNo state estate or inheritance tax — only the federal estate tax reaches the estate.
CaliforniaNo state estate or inheritance tax — only the federal estate tax reaches the estate.
moderate
Harvesting leverageHow much is a harvested loss worth here?
high
ArizonaA harvested loss is worth the 1.88% state rate it offsets, on top of federal — moderate harvesting leverage.
CaliforniaA harvested loss is worth the 13.3% state rate it offsets, on top of federal — high harvesting leverage.
low
Mobility valueHow much could a change of residency be worth?
high
ArizonaThe rate is modest — residency is unlikely to be the lever that moves the household's outcome.
CaliforniaBoth the rate and the estate regime make relocation genuinely valuable — but domicile is a fact pattern, not a mailing address.
high
Basis coordinationWhat basis-step-up opportunity does the marital-property regime create?
high
ArizonaCommunity-property state: community assets get a FULL step-up at the first death — title them so the survivor keeps that basis.
CaliforniaCommunity-property state: community assets get a FULL step-up at the first death — title them so the survivor keeps that basis.
Which coordination priorities change
The household's operating-system domains each environment opens.
The middle column holds where they agree; the outer columns are what is unique to each.
Only Arizona
None triggered.
Shared
Asset titling for step-up· estate attorney
Titling assets to capture the fullest basis step-up the marital-property regime allows at the first death.
Loss harvesting· advisor + CPA
Setting a harvesting cadence that captures the state rate a banked loss offsets, sequenced against the state's loss-carryforward rules.
Asset location· advisor
Placing the high-turnover sleeve in tax-advantaged accounts so the state's rate falls on the least of the household's realized gains.
Only California
Residency & domicile· advisor + CPA
Whether — and how — a change of domicile is worth pursuing, and the facts (days, home, ties) that make it real rather than nominal.
The facts underneath
Dimension
Arizona
California
Capital-gains rate
1.88%Loss treatment conforms to federal: capital losses net against gains and carry forward. Top effective long-term rate 1.88%. Quirk: 25% long-term subtraction (post-2011 lots).
flatA single flat rate regardless of filing status — marriage-neutral on rate; watch fixed-dollar exemptions and AGI thresholds.
2xJoint brackets are double the single brackets — generally marriage-neutral.
QSBS (§1202)
§1202 okConforms to IRC §1202 — the federal qualified small business stock gain exclusion carries through to the state return.
decoupledDecoupled from IRC §1202 — the state does not follow the federal QSBS exclusion, so gain excluded on the federal return can still be taxed by the state.
Illustrative coordination gap
Because the rules differ, so does what coordination is worth. On an illustrative 30-year path, running a portfolio against each state's rules is worth an estimated ~$39,000/yr per $1M taxable in Arizona versus ~$47,000/yr in California — the coordination gap between the two (about +3.9%/yr vs +4.7%/yr modeled). A hypothetical, illustrative figure; the household's own depends on bracket, holdings, and residency (see the full basis of the estimate below).
A difference between two states is a decision waiting to be coordinated.
Turn it into a sequenced operating plan for a move, or fold it into a household's standing coordination record.
State law reflects 2025 tax-year law; last reviewed 2026-07-07. Every classification is a summary of state law; where a primary-source citation has been verified, it is linked on the card.
What changed
2026-07-07 — First law-review date and honest per-cell source labeling; primary-source citations verified for Illinois, California, New York, Texas, and Florida (more in progress).
2025 — Washington's 7% (+2.9%) excise on long-term capital gains reflected (enacted 2022).
2025 — New Hampshire's Interest & Dividends tax reflected as fully repealed, effective 2025.
2025 — Illinois estate-tax detail tracks the pending SB 2970 as of the review date.
Illustrative / hypothetical — not a real track record and not advice. The tax-management impact figure is a hypothetical, after-tax result from the retroactive application of a tax-management model to ~30 years of proxy-spliced market data on a single illustrative path; no client capital was invested, and hypothetical performance does not guarantee future results. Intended for sophisticated investors; it may not be relevant to your situation, and your actual figure depends on your own holdings, basis, and bracket. State tax facts reflect tax year 2025 and can change — confirm with a tax advisor. Driftwood Wealth is a registered investment adviser; Form ADV and Form CRS are available at adviserinfo.sec.gov.
DRIFTWOOD WEALTH · AUSTIN, TEXAS · FOUNDED 2024MODEL DATA AS OF JULY 2026 · FORM ADV & CRS AT ADVISERINFO.SEC.GOV
Driftwood. State tax law reflects 2025 tax-year law; last reviewed 2026-07-07. A comparison is a view of the reasoning graph — it authors no facts of its own.