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Tax Implications of Moving to a New State

August 19, 2016

There are many things to think over when you look to move to a new state; Apart from the schools and jobs nearby, you’ll also want to consider how your taxes will change.

There are unique considerations you must make when moving from state to state, and if you have not pinpointed exactly where you’d like to be, weigh your options to see what state would be easiest, and the least expensive to move to. For purposes of this blog, I thought we might explore the differences between moving to Rhode Island vs. Massachusetts.

Tax A quick look at Tax in RI A quick look at Tax in MA
Tiered Tax Rates? RI has tiered tax rates starting at 3.75% to 5.99% As of 1/1/2016, MA has a flat rate 5.20% tax rate except for short-term capital gains which are taxed at 12%
Social Security? Starting in 2016, RI will start excluding Social Security for some taxpayers (depends on income) MA excludes Social Security benefits from state income tax
Personal Exemptions? Both states have personal exemptions but RI phases out for higher income couples Yes
Standard Deduction? RI's standard deduction phases out for higher income couples No
Rent Deduction? No Yes, maximum $3,000 per return, $1,500 married filing separate
Pensions? Benefits paid under an employee trust or pension plan are subject to RI personal income taxes If your pensions are from governmental contributory plans, they may be exempt from income tax in MA.

Income Taxes

Unlike Alaska, Nevada, South Dakota, Texas, Washington, Wyoming and Florida, MA and RI have state income taxes. However, income tax is very much affected by your personal circumstances, which is why acquiring an analysis of your 2015 returns would be helpful for you if you are considering a move.

Housing costs and property taxes

Income tax is obviously only one of the factors to consider. Housing costs and property taxes, as well as, services and convenience offered in the city/town you are considering are likely to be the major decision points when deciding where to relocate. Considering Massachusetts and RI, property taxes in RI are on average, slightly less than MA ($3,883 as the average amount spent by your typical RI household, compared with Massachusetts, ringing in at $3,896 per household). These are both very high rates compared with Delaware ($538 per household), Mississippi ($790 per household), and Florida ($1,718 per household). Connecticut and New Jersey ring in as the highest for property taxes, $5,244 and $7,335 per household, respectively.

Moving expense deduction

Besides figuring out where you’ll end up, you also have to consider the move itself! What this deduction allows, essentially, is a deduction for the cost of moving utilities and household goods from one residence to the other, as well as any travel and lodging expenses incurred in the period you were moving. Keep in mind that your move has to meet three tests—read our blog, ‘Timely Tax Update: Moving Expense Deduction,’ to find out more.

Other moving considerations

  • If you moved to a new state in the middle of the tax year, you’ll normally file a “part-year return” for each state you lived in during the year (assuming both states collect income tax).
  • If you’re in the armed forces, some states do not tax military retirement pensions, so you might want to consider moving to one of the following areas if you’re retired military:
  • Alabama
  • Hawaii
  • Illinois
  • Massachusetts
  • Michigan
  • Mississippi
  • New York
  • Ohio
  • Pennsylvania
  • Wisconsin
  • Your down-payment on your new residence is not tax deductible.
  • Any repairs, remodels, or construction costs made to your new home are also not deductible.

Moving can be an exciting, yet hectic and confusing time; be sure to read up on all tax rates and regulations of the state you’re looking to move to. Consult a member of our team for guidance before, during and after your move.

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