So You Want to Change Your State Residency: Be Wary!

February 11, 2020 — More and more baby boomers in high tax states are tempted by the notion of retiring to greener pastures. The urge to move to a low tax, less expensive, and possibly warmer state has grown even stronger recently, because of the $10,000 limit on state and local tax deductions. But before you make the leap – make sure you do it right!

A domicile is where an individual maintains his or her permanent abode, and where that person intends to return from any absence. You can only have one domicile at a time. In “How to Become a Florida Resident” we outlined the basic steps you need to change your domicile and become a resident of a new state. Follow those and you are on a good path, but not necessarily free of all trouble. Snowbirds who continue to maintain a residence in their old state are particularly at risk. Here are some of the most basic steps to take:

• Get a drivers license and register your cars in the new state
• Register to vote there
• Own property and have a local address
• Have all your financial records associated with the new state address
• Be out of the state you are moving from for more than half the year

But those steps alone might not help if you are moving from certain states:

Some states in the northeast and midwest are not that eager to give you up as a taxpaying resident. Minnesota, New York, New Jersey, and Illinois are particularly aggressive. They can try, and succeed, in adding additional tests to prove that your domicile really is in the new state. Here are some of the questions that auditors ask when challenging a state residence move on the grounds that you have more connections in the original state:

• Where are your doctors, pets, health care providers, and accountants? It is always a good idea to establish a relationship with providers in your new state.
• What clubs do you belong to in your old state?
• Can you prove you were out of the state (or in your new state) for 183 days each year? Best to keep careful records. With credit cards and phone records, it is easy to tell if you are not complying.
• Where do you keep your artwork (and in the case of athletes – your trophies)?

Bottom line: Having your residency challenged by your old state will definitely be time consuming and frustrating, so it is best to be prepared. One company with an app to help users prove state residence, Monaeo, reported that over 50% of the people who get challenged in New York lose their case.