$2M Liquidity Event Net Yield by State

A $2 million liquidity event in California nets the seller $1,218,000 after tax and advisory fees — a Finluxy Liquidity Event Net Yield of 60.9%. Move that same all-long-term-capital-gains transaction to Texas and the net climbs to $1,484,000, a yield of 74.2%. The 13.3-point gap is state residency, and it is the single largest controllable variable in the entire net proceeds calculation.

That spread — roughly $266,000 on identical gross proceeds — is what most liquidity-event coverage buries under headline valuation numbers. The gross figure makes the press release. The net yield determines what actually lands in the account. This analysis models the Finluxy Liquidity Event Net Yield for a $2 million event across a representative set of states, holding the transaction structure constant so the only variable is where the seller files.

The key numbers

Source: Author calculations using IRS 2025 long-term capital gains rates and NIIT (IRS Topic 409, Pub. 550); state marginal rates from California FTB, NY Dept. of Taxation & Finance, and Tax Foundation 2025 state bracket data. Fees per Finluxy standard $40,000 advisory/legal model.

What the federal floor costs before a state touches it

Start with what no relocation can change. A long-term capital gain at this size hits the top federal rate of 20%, confirmed in IRS Topic 409 for the 2025 tax year. On top of that sits the Net Investment Income Tax (NIIT) of 3.8%, which applies once modified adjusted gross income clears $250,000 for joint filers — a threshold a $2M event obliterates. The two stack to a 23.8% federal floor on the entire gain.

In dollars, that floor alone is $476,000. Before any state income tax, before the advisory invoice, before the attorney’s wire, nearly a quarter of the gain is committed. A seller in Texas, Florida, Nevada, Wyoming, South Dakota, Alaska, Tennessee, or New Hampshire pays essentially this and nothing more in income tax — the nine states with no broad personal income tax confirmed by the Tax Foundation’s 2025 bracket survey. Their Finluxy Liquidity Event Net Yield lands at 74.2% after the standard $40,000 in fees, the ceiling for this scenario.

The NIIT detail matters more than its small rate suggests. Unlike the ordinary brackets, the $250,000 NIIT threshold is not indexed for inflation, so every year quietly pulls more sellers into it. For a single large event it is not a planning question — it applies in full. The mechanics of how a sale interacts with the rest of a household’s income are covered in the broader liquidity event tax guide.

Where state residency rewrites the result

California is the expensive ceiling. The state taxes capital gains as ordinary income with no preferential long-term rate, topping out at 13.3% on income above $1 million — the highest state marginal rate in the country, per the California Franchise Tax Board’s 2025 schedule. Stack that on the federal floor and the combined rate reaches 37.1%. Tax on the $2M event: $742,000. After $40,000 in fees, net proceeds are $1,218,000 and the Finluxy Liquidity Event Net Yield settles at 60.9%.

New York is where headline rates mislead. The state’s published top rate of 10.9% gets quoted constantly, but it applies only to taxable income above $25 million, per the NY Department of Taxation and Finance. A household realizing a $2M gain lands in the 9.65% bracket, not 10.9%. Modeling the rate the gain actually reaches — rather than the statutory ceiling — produces a combined 33.45% rate, $669,000 in tax, and a net yield of 64.5%. Applying the 10.9% headline would overstate the New York tax bill by roughly $25,000 for this seller. That distinction is the kind of error that propagates through casual coverage of California liquidity event tax calculations and their out-of-state comparisons.

Washington occupies a category of its own. It levies no wage income tax but does tax long-term capital gains: 7% on gains above a standard deduction of roughly $278,000, rising to 9.9% on taxable gains above $1 million, per Tax Foundation reporting on the state’s 2025 structure. For a $2M gain that produces about $141,000 in state tax — far less than California, more than zero — and a net yield near 67.1%. A seller who assumes Washington behaves like Texas because both skip wage tax would miscalculate by six figures.

Source: Author calculations. Federal 20% LTCG + 3.8% NIIT (IRS Topic 409, Pub. 550, 2025); state rates from CA FTB, NY Dept. of Taxation & Finance, Tax Foundation 2025 state brackets. *Washington blends 7% on the first ~$1M of taxable gain and 9.9% above, after a ~$278,000 deduction; effective combined rate shown. All rows net $40,000 in legal/advisory fees from gross.

The holding-period cliff that dwarfs state choice

Every figure above assumes long-term treatment — the asset held more than one year. Break that holding period and the math collapses regardless of state. Short-term capital gains (STCG) are taxed as ordinary income, which means the top federal rate of 37% replaces the 20% LTCG rate, per IRS 2025 ordinary brackets.

Run the California case as a short-term event and the combined rate jumps to 54.1%. Tax on the $2M gain: $1,082,000. Net proceeds: $878,000. The Finluxy Liquidity Event Net Yield falls to 43.9% — the seller keeps less than half. Even in a no-income-tax state, an STCG event yields 57.2%, below what a California resident nets on a long-term gain. The holding-period decision is worth more than the entire interstate spread.

Source: Author calculations using IRS 2025 federal rates (20% LTCG / 37% ordinary, plus 3.8% NIIT) and CA FTB top rate. Fees held at $40,000.

This is why event type drives outcomes. An all-cash acquisition where stock was held over a year produces clean LTCG treatment; the same shares tendered before the one-year mark, or accelerated vesting that triggers ordinary income, can drop a seller into the STCG column. The structural differences are detailed in coverage of IPO tax cost for RSU and option holders and what employees net after an acquisition.

The source-state trap most relocations miss

Here is what the clean state-by-state table omits, and what most coverage overlooks: moving does not always escape the high-tax state. California and New York apply tax to gains sourced to their jurisdiction even after an employee has physically relocated. For a secondary sale of private company stock — a pre-IPO transaction, distinct from any public market sale — the gain can be deemed California-source if the company and the work that generated the equity were in California, regardless of where the seller files on the sale date.

The clean 74.2% net yield assumes the seller is a bona fide resident of a no-tax state with no source-state claim attaching. A founder who relocates to Texas six months before a California-company secondary sale may discover the 13.3% follows the gain — turning an assumed $1,484,000 net into something closer to the $1,218,000 California figure. The mechanics of pre-IPO transactions and their sourcing exposure are the subject of dedicated analysis on the secondary sale of private stock, and the residency-timing question specifically matters for anyone diversifying after a windfall. Treating a state line as a tax line, without confirming source rules, is the most expensive assumption in this entire dataset.

The deferral alternative to selling at all

One structure sidesteps the net yield question entirely. Rollover equity in an M&A deal — where a seller exchanges target shares for acquirer or new-entity equity rather than cash — can defer the gain if structured as a tax-free exchange. No sale, no realization event, no immediate tax; basis carries over and the gain is deferred until a later disposition.

The trade-off is liquidity and concentration. A seller who rolls equity keeps the full position working but holds an illiquid, undiversified stake and an embedded tax liability that surfaces later. The 74.2% best-case net yield assumes the seller wanted cash now; rollover is the choice for sellers who can wait and want to defer the tax bill, with the deferral math laid out in the rollover equity tax deferral framework. It is not a higher net yield — it is a different question.

Methodology

What this means at the $150k+ level

For a household already at $150k+ in baseline income, the practical lesson is sequencing, not just geography. The state-residency spread is real — up to $266,000 on a $2M event — but it is only fully capturable when residency is genuine and no source-state rule attaches to the gain. The household that benefits most has established domicile well before the transaction and confirmed the gain is not deemed California- or New York-source. The household that relocates weeks before a sale, or assumes a no-wage-tax state means no capital gains tax, is the one that gets surprised.

Rank the controllable variables by dollar impact and the order is clear: holding period first, then event structure, then residency. Clearing the one-year mark moves the California net yield from 43.9% to 60.9% — a larger swing than any interstate move. Choosing rollover over a cash sale changes the question from “what do I net” to “when do I realize.” Only after those are settled does the state line become the marginal lever. A seller weighing a lockup period’s cost against an early exit, or comparing a tender offer versus open-market sale, is really weighing holding period and source-state exposure — the two variables that move net yield far more than the rate printed on a state’s bracket schedule. The figures here define the framework; the specific number depends on facts a coordinated tax and legal review should pin down before the transaction closes, not after.