Planning Considerations When Changing State of Residence

Posted on Tue, Nov 16, 2021 ©2021 Drucker & Scaccetti

DeliveryBy: NiCole Rosado


New employment opportunities, a booming housing market, and a change of environment or slower pace of life. These are just a few reasons why people are planning to move. COVID-19 gave all of us time for reflection and, for some, opportunities outside of their current domicile. In today’s blog, we’ll look at simple ways you can evaluate a change in residence before you pull the trigger…including taxes.


For greater perspective on this migration, according to the United States Postal Service, there were 30 million address-change requests submitted in 2020, with about six million crossing state lines. Thirty-four states experienced net migration gains in 2020. New Jersey led the way with gains as many moved from neighboring New York City and Philadelphia (New York led the nation in net loss), many undoubtedly driven by the pandemic. And, now that remote work is becoming more of a norm, people are leaving big cities for the reasons outlined above. When considering a change in state of residence there are many factors to be considered.


Cost of Living & Quality of Life

Consider the following areas, drawing comparisons to your current state:

  • Job market
  • Average salary in your field
  • Transportation costs
  • Housing and schooling
  • Neighborhood crime

Look at other areas that are pertinent to your lifestyle. By researching these areas, you will be better prepared, which will make for a smoother transition.


Perform an Audit of All Applicable Taxes

It is imperative that you research tax laws for both your current state and the state in which you wish to relocate. Sales tax issues may arise depending on the state you are moving from or to. Income tax may or may not apply and, in some cases, will depend on the part-time resident rules per state. You may find that although you may not be responsible for paying personal income, there are other state taxes in place that would result in a negative benefit, so be diligent in your research.


State-level estate tax or inheritance taxes may also differ from state to state and must be taken into consideration. Verifying if an executor/trustee meets state qualifications is necessary in these cases. There may be a required bond and other logistical issues. As a solution you may want to appoint a corporate executor/trustee.


Real Estate

When evaluating a new state of residence make sure you consider real estate taxes, which in some low- or no-income tax states, can be substantial.


Do you currently own a home in the state you are leaving? Consider if you should rent or sell that property. If you plan to rent out property in your prior state of residence, you will likely need to file a nonresident tax return in that state. Often, people think they are not required to file due to reciprocal agreements in place between states. Unfortunately, reciprocal agreements don’t apply to rental income. The requirements vary from state to state, so contact your tax advisor regarding state-specific minimum-filing requirements.


Don’t fret if you must file a nonresident tax return, any liabilities will likely show up as a tax credit on your new home state return. If you plan to sell your home, document, document, document! Keep all documents related to the sale of the property, including capital improvements and any additional costs of the sale. These will be used to determine possible capital gains if your gain is more than the home sale exclusion (often referred to as the Section 121 exclusion).


Moving Expense Tracking

Unfortunately, moving expenses are not an allowable deduction unless you are active-duty military. If you or your spouse are active-duty military, you may deduct some moving expenses using Form 3903. Log all qualifying expenses as they relate to deductions. Keep a strict record of all your moving expenses--consider downloading an app for convenience. An app with receipt & milage trackers will help to streamline the process. Types of moving expenses that should be logged include fuel, tolls, parking, transportation (airline or train) tickets, costs associated with the transport of your household goods, and lodging. These costs can be deducted as relocation expenses on your tax return for the year they were incurred. When filling out Form 3903 you will need to include the amount of reimbursement received, which is found on your W2, code P. If your employer reimburses moving expenses be sure amounts you received are included on your W-2 at year end. The reimbursement should be included in your wages and will serve as a qualifier for deducting any incurred moving expenses.


Advance Premium Tax Credits

If you are receiving health insurance through the Marketplace, you must notify them of the move. Eligibility of your benefits may be affected, as well as possibly affecting Advance Premium Tax Credit qualifications.


Moving can be an arduous process, but also rewarding. Before moving, take time to research and consult with your financial and tax advisors. What may appear outwardly as a financially beneficial decision, may prove to be somewhat complicated and you’ll want to be prepared. Get organized before you embark on your journey and utilize available technology to simplify the process. Good luck and safe travels!

Topics: Moving, domicile

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