Relocating? How to Do It with Taxes in Mind

If you’re thinking about moving from your current locale, you’re not alone. Americans are moving for many different reasons: Remote work is increasingly popular and allows employees to live wherever they have Wi-Fi access. At the same time, tax changes introduced by the 2017 Tax Cuts and Jobs Act (TCJA) limited the important SALT (State and Local Tax) deduction to $10,000 for single and married individuals. That deduction had previously made living in high-tax states less costly for affluent individuals.

When you combine those two factors alone, it makes sense that people are looking to see where the grass may be greener. There’s also a strong possibility that states may begin adding new taxes to make up for budget shortfalls. So it’s no surprise there may be a significant number of people moving. Some say it has already started, using Florida’s net gain of $16 billion in adjusted gross income since 2018 as proof.

Whether states begin adding new taxes or not, it seems clear that people are not staying put the way they used to. Many are basing their decisions about where to go on tax considerations. If you have found yourself starting to look at real estate ads in a different state, you must take a 360-degree view of what moving would mean for you. As attractive as it may seem to pick up your things and go to a state with a more appealing tax scheme, there are other things to think about. Ensuring that if you move, you do so in a way that accomplishes your tax goals.

Here are the different factors you need to make sure to include in your decision-making process.

Taxes are not the only consideration.

Moving to another community is a shock to the system in more ways than one. Moving to an entirely different state will have an even greater impact. You need to think about the quality-of-life issues involved and the implications for those who own multiple homes in multiple states. They will need to choose where their primary residence will be and make sure that they can prove that they are compliant. Non-tax-related considerations include:

• Quality of life issues includes your proximity to family and friends. Familiarity with where all your resources are and access to mass transportation hubs for those who enjoy travel, culture, and climate are just a few things that directly affect your level of satisfaction and enjoyment of life. Moving may leave you feeling isolated and uncertain after years of confidently navigating life from your current address.
• Availability of state-of-the-art medical care is not something to be taken for granted. Suppose you currently live in an area where major teaching hospitals are essentially in your backyard, and you are moving to a more remote location. In that case, you may find yourself regretting your decision, especially as you get older and the infirmities of age start to appear.
• Different areas of the country have different vulnerabilities to hurricanes, earthquakes, and other types of disasters. Suppose you are moving to an area that has a higher risk for any type of weather or naturally caused damage. In that case, it makes sense to investigate what your homeowners’ insurance costs will be. It is also important to think about whether you are willing to put yourself in the path of nature’s wrath.

The taxes are worth considering.

Suppose you’ve already included the non-tax considerations listed above, and you are still intent on making a move. In that case, it is time to understand what doing so will mean to your economic picture. It’s a good idea to sit down and discuss your plans with your financial advisors long before putting your home up for sale. As you may have second thoughts after thinking about all of the consequences of a move. Among your considerations are:

• There may be more to a state’s taxes than what you are thinking about. States require tax revenue to provide for public services, so though you may think you are considering a no-tax state, there is no such thing. If they’re not taxing income, they are taxing something else.
• If you receive income from a trust, you will need to look into exactly how it is taxed at the state level in the state you’re considering relocating to. Every state has a different strategy, and you may not be happy with what you learn.
• If your goal is to gain tax benefits rather than moving, you might consider taking advantage of friendlier tax laws such as those in Delaware or Nevada. You may be able to relocate your assets in a way that limits taxes and offers confidentiality and creditor protection while staying put where you are. This may or may not be possible depending on your situation, but it may be worth exploring.
• Suppose your compensation scheme includes deferred bonuses or salaries paid out during your retirement. In that case, it is crucial to determine how the state you are considering relocating to treats deferred compensation, further, how your specific pay will be treated.

Made up your mind? Here are your next steps.

Like everything else in life, relocating to another state and making it your primary residence is not as easy as just deciding to do it. There are essential steps that need to be followed to reap the tax rewards you are seeking. Here are just a few of those steps: you must do your due diligence to make sure that you have complied with everything required of your new home.

• Change your vehicle registration to your new address
• Apply for a driver’s license for your new address
• Register to vote from your new address
• Find out whether your state requires a “Declaration of Domicile” or similar document, and if so, apply for it and file it
• File your federal tax returns from the new address
• Obtain property and casualty insurance at the new address
• File state taxes as a new resident, as well as former state tax returns as a non-resident if you earn any income in that state
• Adjust all banking records, legal documents, and credit card records to reflect your new address
• Move your belongings to your new address
• Change the address on your passport
• Get established with community, professional, religious and social networks associated with the new address
• Establish relationships with medical providers proximal to the new address
• Host family and friends at the new address

Getting established in a new community is a challenge. Still, it is a crucial step to ensure that you will prove your state residency and get the tax advantages you seek. You may also need to address the particulars of where some of your family members live and go to school to make sure that all of the legal and tax requirements have been met.