You may be wondering how to navigate the intricate process of breaking state residency rules as a US expat. Whether you are embarking on long-term travel or relocating abroad, this is an essential step toward clarifying your tax obligations and safeguarding your finances. Below, you will find a clear, step-by-step look at how to approach breaking state residency, including crucial considerations such as domicile, statutory residency tests, and business ties.
Understand the concept of domicile
Domicile refers to your permanent home or principal establishment. Even if you move abroad, you could still be considered a resident of your former state if you never effectively change your domicile. States often examine factors like voting records, driver’s licenses, and property ownership.
When you are serious about breaking domicile for state taxes, consciously sever as many formal ties as possible with your previous state. For instance, you might cancel voter registration, surrender your old driver’s license, and avoid holding property that could be viewed as a permanent place of abode. In Idaho, for example, the State Tax Commission confirmed an individual was domiciled in Idaho because they maintained local registration, a driver’s license, and a consistent physical presence in the state.
If you want greater clarity on reorganizing your affairs, consider reviewing domicile change exit strategies. By creating strong ties in a new state or country and deliberately ending ties to your old one, you reduce the likelihood of lingering residency claims.
Tips for establishing a new domicile
• Change your driver’s license and vehicle registration to the new location.
• Update any voter registration or professional licenses.
• Shift memberships (e.g., clubs, gyms) to your new locale.
Master the 183-day rule
Many states have a separate test called “statutory residency.” Under this guideline, if you spend 183 days or more in that state, you may be considered a resident for tax purposes, regardless of your declared domicile.
Some states, like New York, combine the day-count test with the requirement of a “permanent place of abode.” In a 2021 ruling, a married couple who spent more than 183 days in New York and owned a vacation home there was deemed statutory residents, even though their primary domicile was in New Jersey. This underscores the importance of monitoring your presence in any state where you might cross the 183-day threshold.
For more on dividing your time to avoid unintentional residency, check out our state residency exit checklist. It outlines practical steps to retain documentation of your physical location, such as airline receipts and utility bills.
Plan your residency exit steps
Breaking state residency rules requires a well-organized plan. You will want to collect evidence of your move and keep thorough records, especially if you are leaving a high-tax or “sticky state” like California, New York, or Virginia.
- Decide your timeline. Give yourself enough lead time to update legal documents, shift bank accounts, and handle any property transfers.
- Draft a pre-move strategy. Think about tasks like selling or renting out your home, canceling local memberships, and unsubscribing from local services.
- Execute your relocation. Once you move, focus on establishing meaningful connections in the new place—rent or buy a property, join a local community, and switch your billing address.
If you operate a business, you may need to either dissolve the company in your former state or officially domesticate it elsewhere. Consider reviewing breaking domicile for state taxes to see which option aligns best with your move.
A note on Utah’s near irrebuttable presumption
Utah’s 2020 Buck v. Utah State Tax Commission decision showed that claiming a primary residence exemption in the state can create a strong presumption of Utah domicile. If you are trying to exit Utah residency, be prepared to counter the idea that your home in Utah remains your permanent abode.
Manage your business ties
If you are a US expat business owner, your state classification can hinge on where your company is registered, managed, or owned. Certain states, like California, are more aggressive in holding onto former residents who continue to have LLCs established there.
You may explore alternatives such as merging LLCs in the new state or dissolving the old business entity. This helps detach you from states recognized as especially reluctant to release taxpayers. For detailed guidance on the tax implications of these actions, consider exploring tax consequences of breaking residency.
Common challenges for business owners
Some entrepreneurs keep a mailing address back home because it may be simpler for bank accounts. However, states often interpret this as evidence you are not fully severing residency. Be sure to analyze the risk of continuing any physical or financial footprints.
Avoid common residency pitfalls
Overlooking small details can lead to protracted disputes with the old state’s tax authorities. Even minor oversights, like renewing a local library card or planting a garden at your former home, could suggest that you intend to return.
• Not documenting your presence in a new state. Keep logs or use apps that verify your location.
• Retaining a permanent place of abode in the old state. If you must keep a property, consider renting it out long term.
• Underestimating the burden of proof. In March 2021, the Kansas Court of Appeals ruled taxpayers owed $41 million in taxes and penalties because they could not establish they had honestly shifted domicile to Florida.
If you need a more comprehensive view to avoid these perpetual gray areas, our state residency termination guidelines detail what to do if your previous state challenges your credentials.
Ensure you have a plan
A thorough approach reduces the odds of your former state asserting continued residency. This might include a proactive discussion with tax professionals, who can offer advice specific to your situation.
Frequently asked questions
- How do states decide my residency if I spend time in multiple places?
They typically look at factors like domicile and day counts. If you frequently cross the 183-day threshold in a given state, you risk being tagged as a statutory resident for tax purposes. - Do I need to file two tax returns if I work remotely in one state but live in another?
In many cases, yes. You file a nonresident return for income earned in the work state and a resident return for your home state, claiming a credit for taxes paid. Reciprocal agreements exist between certain states, so check which rules apply to you. - What if I keep a house in my old state for vacation purposes?
You may be seen as maintaining a permanent place of abode. This, paired with spending enough days in the state, could create a statutory residency issue, as shown by the 2021 New York case involving a vacation home. - Are there penalties if I mistakenly claim I am no longer a resident?
Yes. States can assess back taxes, interest, and penalties. In severe cases, they can impose fines for intentional misrepresentation. Always keep reliable records to support your claim of changing residency. - Which states are known for being “sticky” about losing residency?
California, New York, Virginia, New Mexico, and South Carolina often require substantial proof to abandon residency. These states have comparatively higher tax rates and thus are more likely to scrutinize your exit thoroughly.
Key takeaways
• Changing your domicile involves cutting ties with your former state, from driver’s licenses to property ownership.
• Statutory residency may apply if you spend 183 or more days in a state—this can override your declared domicile.
• Business owners must consider how their LLCs or companies are structured, as continued operations in your old state may undermine your new residency claim.
• Detailed records and proactive changes (such as updating voter registrations or property titles) can help demonstrate your intent to relocate permanently.
• Sticky states can be more aggressive in maintaining residency, so plan carefully if you are leaving places like California or New York.
When you are ready for personalized advice, consider contacting American Pacific Tax at your earliest convenience. They can help map out an individualized state tax residency exit planning approach. If you commit to a solid plan, you can reduce your chances of a residency challenge and focus on enjoying your life abroad.
