global Tax Should You Change Your State Residency? Key Tax Considerations Before You Make the Move July 14, 2026 More individuals and families are exploring residency changes in search of lower taxes, greater flexibility and more. Beyond changing your driver’s license and voter registration, there are a number of tax considerations you should take into account before making the move. Quick Takeaways Changing residency can create meaningful income, estate and inheritance tax savings, but only if the move is properly documented. States are increasingly scrutinizing residency change claims, especially for high-income taxpayers. The Massachusetts Millionaires’ Tax has prompted many individuals to reevaluate where they live and work. Rhode Island also recently adopted a new Millionaires’ Tax starting in 2027.Simply purchasing a home in another state is not enough to establish residency. Maintaining detailed records and understanding each state's rules can help reduce audit risk. Why it mattersA successful residency change can create meaningful tax savings and support long-term financial goals. However, states have become increasingly aggressive in challenging residency claims, particularly when significant tax revenue is at stake. Understanding the rules before you move can help avoid costly mistakes down the road.Why are more people considering a residency change as of late?Several factors have contributed to the increase in residency planning conversations:Rising state tax burdens The Massachusetts Millionaire Tax and similar state tax changes Increased flexibility from remote work and retirement Relocating closer to family or for lifestyle reasons The growing popularity of second homes becoming primary residences How has the Massachusetts Millionaire Tax impacted residency planning?One of the most common topics we discuss with Massachusetts residents is the state's Millionaire Tax. Approved by voters in 2022, the surtax imposes an additional 4% tax on annual taxable income exceeding $1 million.For taxpayers with significant business income, investment gains, or the sale of a closely held business, the impact can be substantial. As a result, many individuals are evaluating whether relocating to a state with lower or no income tax aligns with their long-term plans.That said, changing residency solely to avoid the surtax requires careful planning. Massachusetts closely examines residency claims and can challenge taxpayers who continue to maintain strong ties to the state. A successful residency change requires demonstrating that your new state has truly become your primary home (not just spending a few extra days elsewhere).How do states evaluate whether you truly moved?Most states look at two primary factors:Domicile: Your domicile is your permanent home (the place you intend to return to after being away). You can have multiple residences, but only one domicile.Statutory Residency: Some states may still consider you a resident if you maintain a permanent place of abode and spend more than a specified number of days in the state, even if your domicile is elsewhere.What are the estate tax considerations associated with a change in residency?Income taxes often receive the most attention, but estate taxes can be just as important for high-net-worth families. Several states impose estate or inheritance taxes, often with exemption amounts that differ significantly from federal thresholds. Relocating from a state with a state-level estate tax to one without such taxes may create substantial long-term savings for heirs.For individuals with significant wealth, residency planning should be coordinated with broader estate planning strategies, including trusts, gifting programs and succession planning.What about income taxes?State income tax treatment varies considerably.Depending on where you move, you may encounter:No state income tax Lower tax rates on ordinary income Different treatment of retirement income Different taxation of capital gains Special rules for pass-through business income It's also important to remember that moving does not necessarily eliminate taxes in your former state. Income sourced to that state, such as business activities, rental properties, equity compensation, or certain deferred compensation arrangements, may still be taxable there.A residency analysis should consider both current income and future liquidity events, such as business sales, stock transactions or large capital gains.What do states look at during an audit?When a state challenges a residency change, auditors typically look beyond paperwork and focus on the totality of the facts.Common areas of review include:The number of days spent in each state Primary residence and home ownership patterns Driver's license and vehicle registrations Voter registration Location of family members Medical providers Banking relationships Club memberships and community involvement Business activities and professional relationships Where valuable personal possessions are kept In many cases, auditors are attempting to determine where the center of your life is located.Common pitfalls we've seenThrough years of advising clients on residency matters, we've seen several recurring mistakes:Assuming a driver's license change alone establishes residency Failing to track days spent in each state Keeping too many personal and financial connections in the former state Maintaining a larger or more actively used home in the former state Overlooking estate tax implications Waiting until after a major liquidity event to begin planning Inconsistent addresses across financial, legal and tax records The earlier residency planning begins, the more options are typically available.Changing your state residency can offer meaningful tax and estate planning opportunities, but it requires careful execution. For high-net-worth individuals and families, the stakes are often significant, particularly when future business sales, investment gains or wealth transfer strategies are involved.
