Residency for Tax Purposes

Daniel P. Nolan, JD

Many taxpayers move to a different state when they retire in order to take advantage of lower state income taxes. Changing your tax residence is easy if you sell your home, leave your current state and move to another state. However, when you keep your current home and buy another home in your new location, changing your tax residence might not be so easy.

In order to be effective for income tax purposes, you must change your domicile. This concept of domicile can be tricky, because it is based on facts and circumstances. Furthermore, the courts have held that a taxpayer cannot obtain a new domicile until he surrenders his/her current domicile.

So, what is the definition of domicile? It is the place you intend to be your permanent residence. The courts interpret “intention” using a facts and circumstances test. If you have lived and worked in the same state for years, it’s easy to conclude that state is your domicile.

What can you do to “prove” your intention to abandon your current domicile and establish a new one? For starters, you can file an affidavit attesting to your intent to establish your new domicile. But it’s not conclusive. In addition to signing an affidavit, consider the following:

  • Voter registration
  • Driver’s license
  • Location of doctors
  • Location of advisors
  • Address for mail
  • Location of house of worship
  • Number of days present in State
  • Size and type of dwelling (as compared to other residences)
  • Car registration
  • Re-execution of wills, etc. in new domicile
  • Charities to which you donate/ volunteer time
  • Location of primary bank

It isn’t necessary to do all of these things, but you should do most of them, or it will look as if you haven’t abandoned your current domicile. Also, you should use the new in-state address for tax purposes, insurance records, passport, credit cards, Social Security, bank and brokerage accounts and membership organizations.

No one factor is conclusive – taken together, they must clearly establish intent to change domiciles. It is often misunderstood that if you spend 183 days in the new state (i.e. more than half of the year) you have changed your domicile, but that is not so. Factors that will count against you and tend to show that you did not intend to change domicile are:

  • Maintaining primary relationships with doctors, lawyers, investment advisors, and banks in the old domicile
  • You spend an equivalent number of days in your new intended domicile as the number of days you spend in the old domicile (e.g. 165 days in new, 160 days in old and 39 travel/vacation days).
  • Retaining a business presence in the old domicile
  • The size and style of the new home compared to the old home

Recordkeeping is imperative to prove the number of days spent in the new intended domicile. Phone records, credit card records and other contemporaneous records that reflect physical presence can be helpful in documenting your physical location.

This is tricky business. If you are considering a change of residency for tax purposes, consult your tax advisors before making the move.

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