Overview

Relocating to a different state affects more than your mailbox: it can change your income tax, property tax, capital gains exposure and sales-tax and local-tax burdens. Done thoughtfully, a move can reduce annual taxes and protect retirement income. Done poorly, it can create dual-state filings, unexpected tax bills, and compliance headaches.

In my practice as a CPA working with relocations for more than 15 years, I’ve seen the difference careful planning makes. A well-timed move, clear documentation of a new domicile, and proactive withholding adjustments often save clients thousands of dollars and prevent audits.

Sources to consult: the IRS (irs.gov) for federal rules and many state Department of Revenue sites for state-specific residency and filing rules. The Consumer Financial Protection Bureau has practical moving-cost guidance that helps separate tax decisions from logistics (consumerfinance.gov).

Key tax strategies to consider

  1. Time your move within the tax year
  • If possible, move at the end or start of the calendar year based on which state’s tax rules favor you. Many states tax residents on worldwide income for the part of the year they are residents and nonresidents on income sourced within the state. Moving at year-end can minimize the number of days you are a resident of a high-tax state.
  • Be cautious: some states have statutory-residency rules (for example, counting days present) that can create tax liability even if you consider yourself moved. Confirm the rules with the state revenue department.
  1. Establish domicile and stronger ties to the new state
  • To get the new state’s tax treatment, create objective ties: obtain a driver’s license, register to vote, update your mailing address, sign a lease or close on a home, and move family members if applicable. Keep the documentation (copies of the license, voter registration, deed/lease, utility bills).
  • Keep a clear timeline of steps taken to support your claim of a change in domicile in case of challenge by the prior state.
  1. Understand and manage income sourcing
  • States tax different kinds of income differently. Wages are generally sourced to where the work is performed; pensions and retirement may be taxed where you live. Investment income is typically taxed by residency. If you earn wages while working remotely for an employer in your old state, you may have withholding or nexus issues—address this with your employer’s payroll team.
  1. Adjust withholding and estimated taxes
  • After you move, update your federal and state withholding forms (W-4 and relevant state form). Failing to update withholding can produce underpayment penalties or large refunds from the old state.
  1. File the correct state returns
  • You’ll often need to file a part-year resident return in the old state and a part-year or resident return in the new state for the year you move. Each state has different rules for crediting taxes paid to other states—review both states’ instructions carefully.
  1. Plan for home sales and capital gains rules
  • The federal primary residence exclusion (IRC Section 121) can exclude up to $250,000 ($500,000 for qualifying married couples filing jointly) of gain on the sale of a primary residence if ownership and use tests are met. States differ on how they conform to this exclusion; check your new and prior state’s rules before selling.
  1. Watch retirement income and state tax exemptions
  • Some states exclude all or part of retirement income (pensions, Social Security, 401(k)/IRA distributions). If you’re retiring, move to a state with favorable treatment of retirement income may deliver big savings, but evaluate the full fiscal picture (property taxes, health-care costs).
  1. Consider local taxes and reciprocity agreements
  • Some cities and municipalities levy local income taxes; a state move may not remove local tax exposure. Also, nearby states sometimes have reciprocity agreements (common for neighboring states) that simplify withholding for cross-border workers—confirm whether these apply.
  1. Document everything for an audit defense
  • Maintain a relocation file with dated evidence: lease/deed, utility bills, change-of-address confirmations, doctor/childcare records, school enrollments, travel logs showing days in each state, and correspondence with employers and tax advisors. States frequently examine domicile claims with a timeline and supporting documents.
  1. Watch special rules for remote/seasonal work and business nexus
  • If you work remotely or run a business, moving states can trigger multi-state withholding or sales-tax nexus for your employer or business. Review our guide to [State Tax Planning for Remote and Seasonal Workers](