Live Where the Taxes Are Low

With home prices at their peak, it pays to factor other financial benefits into your relocation plan. Whether you’re downsizing your footprint, thinking about working remotely, or moving closer to your kids or grandkids, don’t forget that there are tax advantages to claim if you move to a lower-tax state.

Here are five things to keep in mind to reap the benefits of a new ZIP code:

1. Establish domicile. From a tax perspective, domicile and residence are two separate concepts. You can own multiple residences, but you can only have one domicile—and it’s your domicile that determines where you owe taxes. Simply owning property in a state is not enough. While states’ laws on establishing domicile vary, there are two rules that generally apply. First, your domicile must be your principal and permanent place of residence. Second, you must intend to return to and remain in that residence for an indefinite period.
2. Show Intent. How do you prove to Uncle Sam that you intend to stick around in your new home? Here are some convincing specifics:

• • You’re registered to vote there
  • You have a network of local professionals (e.g., doctors, dentists, accountants, etc.)
  • Your driver’s license and vehicles are registered there
  • Your family heirlooms and other valuables are kept there
  • You’ve joined local social organizations
  • You have a gym membership

3. Track Time Spent.You must spend over half of the year (183 days) at your new home for it to qualify as your principal residence. In case your tax filing triggers a residency audit, keep track of receipts, travel charges, flight and cell phone records, etc., to prove you were living in your desired domicile for most of the year.

4. Sever Ties to Your Previous Domicile. To strengthen your case, it’s wise to minimize ties with your old home. The easiest way to do that is to sell any real estate you own there. Or, if you plan to hold on to multiple homes, try to keep a low profile there for at least a few years. The tips listed above also work in reverse: Cancel your old gym memberships, close bank accounts, and sever affiliations to clubs or organizations to help make the case that you are no longer a permanent resident.

5. File Appropriately and Update Your Financial Plan.Once you’ve established your new domicile, make sure to file your federal income tax return using your new address. Depending on the state, you may also need to file a Declaration of Domicile document. And remember to keep your network of financial professionals in the loop. In particular, work with your attorney or adviser to update your estate plan to reflect new state laws.

As you can see from the above, establishing domicile in a new state isn’t easy. The IRS wants to be sure you have every intention of making this your new home. If you have any questions about your situation, please contact us. We are happy to help. After all, we are The Planner You Can Talk To.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.