The bags are packed, the trucks are loaded up, and the route is in the GPS. Moving is already exciting, but if you’re heading to a state that promises a lower income tax rate — or none at all — or one that will create a favorable inheritance tax situation for your family, you might be hitting “go” on the GPS with some purpose.
A more favorable tax situation or the desire to live in a warmer climate have always been motivations for moving, but recent developments make the decision more feasible. Whereas in the past, employment situations may have tied down families, remote work is now a legitimate option in many industries. People have more freedom to move where they want to be.
But moving isn’t always as simple as selling a home, buying a new one and enjoying your improved tax situation. There is more to consider than meets the eye. Here are just a handful of the items to address before moving or when you’re moving to a lower tax state.
1. Try Before You Buy
As appealing as a new climate or lower taxes sound, it is recommended, if possible, to rent in a new location before buying a home. That way you’ll learn whether you enjoy living in the new area, if another lower tax part of the country is a better fit, or even that you prefer your current home.
This strategy often is more viable for retirees or “snowbirds,” because they may have adult children and don’t need to concern themselves with moving an entire family or worrying about their employment. If renting isn’t an option, younger families may still be able to “try before they buy” by taking extended vacations or by simply performing research on what living in the new state is like.
2. Establish Residency
Each state has its own rules for establishing residency. Typically, it’s the number of days you’ve lived in that state. However, some states may try to claw you back on an inheritance tax, too. For instance, if you’ve moved but continue to own an asset in the former state, that state may prorate the tax liability (example: Massachusetts).
Simply buying a home is often not enough to establish residency, though. For example, if you’re moving from Pennsylvania to Florida — or splitting time between the states but planning to spend the majority of the year in Florida — these items will help you establish your new residency:
- File a Declaration of Domicile with the clerk of court in your new county of residence.
- Register and vote in Florida.
- Obtain a Florida driver’s license and register at least one motor vehicle in the state.
- Use a Florida address on your federal tax returns.
- Claim the homestead exemption for your new Florida residence.
- Establish significant financial accounts with banking, brokerage and similar institutions in Florida. Also, remove the contents of safe deposit boxes outside of Florida and move the contents to Florida.
- All future estate planning documents should include the new address.
- File a final tax return in Pennsylvania.
- Consult a physician in Florida and have a copy of your medical records sent to them.
- Declare Florida as your place of residence in forms and documents, such as Social Security Administration papers, passport renewals, contracts, deeds, leases, etc.
- Spend less than 183 days per year in Pennsylvania.
Remember, this checklist is specific to Florida and rules can vary by state, but certain items, such as obtaining a new driver’s license and registering to vote generally are part of establishing residency in any state and are good practices once you’ve completed a move. This list is not comprehensive. We are not providing specific advice on what to do for residency. You should consult your tax preparer for complete guidance on what to do for your situation.
3. Consider the Cost of Living (and Adjust)
You may be saving on your taxes by moving to a new state, but your budget may increase in other areas that offset the difference, particularly if you cashflow remains the same as when you were living in your former state. Housing costs vary wildly in different parts of the country — a home you get for $500,000 in Pittsburgh might go for a whole lot more elsewhere. Groceries may be more expensive, tuition for your children’s school could jump considerably, or the cost of eating out may be more if you’re living in a higher-income neighborhood. Perhaps you’ll move to an area where you decide to buy a boat; you’ll need to pay for insurance and docking fees. Suddenly, the benefit from your lower taxes may be erased.
No matter what, expect your cost of living to change when you move (in a perfect world, of course, it will decrease). You’ll need to adjust your annual and monthly budgets accordingly to ensure you can continue to live the lifestyle you did pre-move.
4. Learn the New Rules
Plenty of times, the old saying is incorrect, and the grass is greener on the other side — or when you make a move to a side that’s thousands of miles away. But there is still validity to conventional wisdom. After all, governments must create revenue.
That means certain taxes or fees may be significantly higher than what you’re accustomed to paying. In states without income taxes, they may have increased property taxes or higher fees on vehicles. On the other hand, some cities and states, such as Alaska, offer incentives to move there.
Before moving, do some research to see what types of programs you may qualify for — and what extra expenses you can expect.
5. Consult Your Advisory Team
Moving can be a significant life event for your family, one not far off from having a child or selling a business when it comes to the financial impact. And just like you would during those occasions, you should speak with your advisors to determine how it affects you on a near-term basis and concerning your estate.
A trusted attorney or CPA can ensure you’re establishing residency the proper way, taking maximum advantage of tax benefits in your new state, and avoiding any potential pitfalls. Get started by reaching out to one of Waldron Private Wealth’s experts.
