Known for its amazing restaurants, friendly people, and unique neighborhoods, people from all over the world came for a visit or to permanently call the City of Roses home. Hardly a week went by without another New York Times article singing Portland’s praises or a visit from celebrities like Anthony Bourdain or Jerry Seinfeld.
With the onset of the pandemic and the emptying of downtown office workers, the closure of popular stores like the flagship REI in the Pearl District, and the increase in visible homeless and mental health issues, many longtime residents have started to question their dedication to Portland.
At the same time, voters passed several new measures in 2020, including Multnomah County’s Preschool for All and Metro’s Supportive Housing Services tax. While voters strongly approved both, many people were caught off guard by the new taxes when it came time to file. The new combined taxes, coupled with Oregon’s already high state taxes, mean Portland’s income tax rate of 14.7% for high earners is only second to New York City.
The combination of higher taxes and what some residents perceive as a declining quality of life in Portland has left many people, including several of our clients, considering a move out of Multnomah County to adjacent counties like Washington or Clackamas.
While each situation is unique, we love to help clients think through the financial implications of these decisions. We also frequently employ the advice of trusted professionals like Madeline Payne, CPA, MST, and Tax Partner at Hoffman, Stewart, & Schmidt, and contributor to this month’s topic to lend her expertise.
If you’ve found yourself asking if a move out of Multnomah County would make sense for your situation, here’s a framework for weighing that decision using a hypothetical example of Chris and Sarah.
Background Information
Chris and Sarah are married and have two small children. They both are W-2 employees with a household income of approximately $600,000. They purchased their home in Multnomah County several years ago with a 30-year fixed mortgage at 3%. They currently claim the standard deduction on their taxes, as their State and Local Tax (SALT) deduction is capped at $10,000, and their mortgage interest is quite low.
Ultimately, Chris and Sarah want to buy a larger home in Washington or Clackamas County. As home prices in the Metro region have soared, they are looking at homes ranging from $1.5 to $2 million. They plan on selling their current home and using the proceeds towards the new home.
After realtor fees and paying off their existing mortgage, they will have approximately $600,000 to apply to a new 30-year mortgage at current interest rates of 7.5%.
Step 1: Determine your current tax rates
For Chris and Sarah, we first started by looking at the federal, state, and local taxes they are currently paying:
| Marginal Tax Rate | Description | Notes |
| 35% | Federal Marginal Rate | |
| 9.90% | Oregon Marginal Rate | |
| 2.35% | Payroll Tax | Maxed out Social Security tax. This represents Medicare plus surcharge. |
| 1.00% | Metro Tax – SupportiveHousing Services | Applies to Multnomah, Washington & Clackamas Counties.* 1% on income above $150k for individuals and $200k for joint filers. |
| 3.00% | Preschool for All | 1.5% between $200k – $400k & 3% above $400k |
*Note: There are pockets of these counties that are not within the Metro district.
Tax rates are marginal, meaning your federal and state rate is the amount you would pay on an additional dollar of income, not the total tax you’ve paid on your entire income. Chris & Sarah’s top federal marginal rate of 35% only applies to the portion of their income above $465k.
Your effective tax rate, however, is often much lower due to tax deductions and credits. To calculate your effective tax rate, find your total tax (line 24 on your Form 1040) and divide that number by your taxable income (line 15 on your 1040).
Note: this is a simplified, high-level way to see how taxes can impact a move or stay decision. Taxes are much more nuanced and complex, so working with a competent tax professional is important.
Step 2: Calculate potential tax savings from moving
Let’s assume Chris and Sarah find their dream house in Washington County for $2 million. To purchase it, they sell their current home and use the $600,000 net proceeds as a down payment. (Side note: if Chris and Sarah have over $500,000 in appreciation on their Multnomah County home, they will be subject to federal, state, and local capital gains tax on the appreciation above $500,000.)
They take out a $1.4 million dollar mortgage at 7.5%, and their principal and interest payments will be over $100,000 per year. Mortgage interest on a primary home is tax deductible but only on loans up to $750,000. Therefore, only a bit more than half of their interest payments will be deductible on their taxes. Still, the amount they can deduct will be enough to itemize their deductions rather than taking the standard deduction.
In 2024, the standard deduction for married couples filing jointly will be $29,200. The tax-deductible portion of their mortgage interest is around $63,000 (approximately $118,000 x 54%), plus the $10,000 SALT deduction totals $73,000 in itemized deductions. The additional $44,000 they are now deducting from their income represents a $15,400 tax savings at their 35% marginal federal tax rate.
If Chris and Sarah move out of Multnomah County, they will no longer be subject to the Preschool for All tax, saving them around $9,000 a year. Note: this tax is based on household income, so it will fluctuate annually and is set to increase by 0.8% beginning in 2024. If they are in one of the three Metro counties – Multnomah, Clackamas, or Washington – they will not avoid the Supportive Housing Services tax. Heads up: there are pockets of these counties that are not within the Metro district. To help with this, enter the address in the search bar in the upper right-hand corner of this county boundaries map.
Assuming Chris and Sarah’s total tax rate of 49%, a move would result in tax savings of ~$30,500 annually. By now, you’re probably used to us adding an asterisk or sidenote. In this instance, we’re keeping things high-level for illustrative purposes. If you wanted to get down to brass tacks, the Oregon and local tax savings would be slightly different than this estimate, as the Oregon standard deduction is so much lower than federal. Instead of using the $44,000 figure, Chris and Sarah would need to take the difference between their old itemized amount and the new amount. You’d also need to break down the local taxes.
Step 3: Don’t let the tax tail wag the dog
While the potential to save money every year on taxes is undoubtedly appealing to Chris and Sarah, there are other costs they need to consider. Moving to a larger home will certainly impact their cash flow, with a much larger monthly payment, higher property taxes, and higher insurance, utility, and maintenance costs.
Comparing Chris and Sarah’s current mortgage, property taxes, insurance, and maintenance expenses to projected costs for their dream home results in an additional $120,000 yearly.
Their tax savings of ~$30,500 pales in comparison to the additional $120,000 in expenses for their dream home.
Step 4: The devil is in the details
Albert Einstein once said, “The hardest thing in the world to understand is the income tax.”
The decision to move or stay is no exception, as there are additional details and complexities to consider beyond steps 1 – 3.
Madeline Payne, Tax Partner at Hoffman, Stewart & Schmidt, highlights some of the more common scenarios and resulting implications she’s encountered in her practice below.
Sourced Income
The Metro District and Multnomah County tax income based on where it is earned. As previously discussed, the calculations are often more complex than the example provided.
Let’s say Chris and Sarah’s W-2 jobs are located in downtown Portland. Their wage income will be taxed by Multnomah County regardless of where they live because their services are performed in Multnomah County. Moving outside Multnomah County wouldn’t be significantly impactful for them.
Now, let’s say Chris and Sarah can arrange a hybrid work schedule where they work from home 4 days a week and go into the office 1 day per week. In this case, only a small portion of their combined $600k wages would be sourced to Multnomah County and there would be tax savings from moving.
Before moving, Chris and Sarah should also consider how stable their respective jobs are. If they move for tax savings and later change jobs to an employer that is located in Portland or doesn’t allow hybrid work, the savings become moot.
For taxpayers who are business owners, the considerations are similarly nuanced. Passthrough business owners with income sourced to Multnomah County will have business income taxed by Multnomah County, regardless of moving to Washington or Clackamas County.
Changing Domiciles
It’s not uncommon for folks to inquire about using a second home or vacation property as their primary residence to save on taxes. Like many things tax-related, it’s not that simple. Without selling the Multnomah County residence, taxpayers must meet a burden of proof that their domicile has changed. There are many factors to consider, for example, the amount of time spent in each location, the location of their social and professional ties, where their vehicles are registered, and so forth.
When the math works in favor of moving
There are specific scenarios where the tax savings can be worth the move, such as a buyer who has the resources to pay for a property in cash or requires a very small mortgage at today’s higher interest rates.
Additionally, the higher your income, the more sense it could make to move.
Suppose Chris and Sarah move to a home in Beaverton, priced similarly to their current residence, and their employers are in Washington County. Assuming they earn a total income of $2 million, they can save approximately $51,000 annually in Preschool for All tax. They may also enjoy lower property taxes in Washington County as compared to Multnomah County. Even after accounting for the additional annual interest cost of $36,000 on a mortgage of $750,000 for both homes, there are overall savings associated with moving. The deal is made sweeter by the additional tax write-off that comes with the increased deductible interest expense.
The tax code also provides a capital gains exclusion for the sale of a qualified primary residence. For married filing joint filers like Chris and Sarah, up to $500,000 of appreciation is exempt from income taxes. It’s possible to sell your primary residence, lock in $500,000 worth of appreciation tax-free, and invest the proceeds into a more expensive home outside Multnomah County. Consider that future market appreciation on the new home could potentially be greater than the old home.
Step 5: Consider the intangibles
Indeed, decisions about where to live are often influenced by factors beyond financial calculations. Proximity to work, community, social activities, family, and other personal considerations can all play a significant role. As working moms who understand the importance of balancing the practical with the personal, it’s clear that there are many valid reasons for choosing to move or stay put beyond the numbers. After all, life is about more than just what can be penciled out on paper.
Wondering what makes sense in your situation? Reach out… we’re here to help.
Disclaimer: This blog post should not be considered tax advice. Please seek advice from a tax professional before implementing any tax strategies discussed in this article.
Uplevel Wealth is a fee-only, fiduciary wealth management firm serving clients in Portland, OR, and virtually throughout the U.S.
