Changing your state of residence for tax purposes
Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management
- Many states, especially those that levy a state income tax, actively challenge claims by former residents that they have moved and changed their tax domicile.
- For your move to be respected, you really have to move – half measures could leave you open to tax claims by your former home state.
- You also have to establish domicile in a new state; being absent from your former home state isn’t enough (domicile is a matter of intent, implied by your actions).
When moving to a new state, you may have to sever some or all ties to your former state. Half measures can leave you open to tax claims by your prior home state.
You really have to leave – and establish a new tax domicile
Many states, especially those that levy a state income tax, actively challenge claims by former residents that they have moved out of state and changed their tax domicile. These states may point to any continuing tie to argue they can still tax you.
For your move to be respected, you really have to move – half measures could leave you open to claims by your former home state that it should still be able to tax you. You also have to establish domicile in a new state; being absent from your former home state isn’t enough. For tax purposes, domicile is a matter of intent, and that intent is reflected in your actions.
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How do you change your tax domicile?
Changing your residence is a legal matter, so you should contact your independent legal and tax professionals before taking any action. What follows is a checklist of items to consider. Although there’s no bright-line rule, the more of these you do, the more likely it is you’ll be deemed to have changed your residence for tax purposes:
- Change your driver’s license to your new state and surrender your prior license, if required.
- Register your car in your new state and notify your insurance company of the change.
- Register to vote in your new state and cancel your prior registration.
- If applicable, move community or faith-based memberships to your new state and make local contributions.
- Buy a home in your new state – and if possible, sell your home in your old state (or transfer it to family members or other entities); if you can’t buy right away, rent with a long-term lease.
- Claim a homestead exemption in your new state (if applicable), and relinquish any homestead claim in your old state.
- Revise your estate planning documents (wills, trusts, powers of attorney, healthcare powers of attorney, advance care directives) to reflect your new state, and use your new state’s forms.
- Consider moving your primary banking relationships to your new state.
- Move your safe-deposit box to your new state.
- Obtain a library card in your new state.
- Change social and service clubs (for example, Rotary or Kiwanis) to your new state; serve on local charitable boards.
- Engage local medical professionals; send your medical records to them.
- Consider updating your address with the IRS – and use your new address on your returns.
- Notify vendors (credit cards, brokerage, etc.) of your new address.
- Generally, focus your activity (economic, social, financial) in your new state.
Be careful with your timing (day counts and residency audits)
In some states, spending more than 183 days there while maintaining a permanent place of abode can make you a resident for tax purposes, although the rules vary by state. The closer you are to an applicable threshold, the more likely your former state may ask you to document how many days you spent there. Keep a daily calendar (with receipts, if possible) showing that you were outside your former state for each day. In the first year you claim nonresident status in your former state, you may be more likely to experience a residency audit than in future years, regardless of how close you are to the threshold.
Although you may not have to be in your new state for more than 183 days, your former state may look at how many days you spent in your former state as one factor in determining whether you’ve established residency.
Contact a J.P. Morgan professional to discuss any plans you have to move to a new home state.
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