legal residency

[ripper1]

I am planning to move from Illinois to Indiana in the spring of 2011. I am building a new home in St. John, IN and when I move in I will be putting my home in Illinois up for sale. At what point will I or do I have to show that I am a full time resident. The home in Illinois could take all of 2011 before it is sold. I guess what I am getting at is my pension from Illinois is not taxed but when I move to or become a full time resident of Indiana it will be taxed at the flat rate of 3.4%. Can I still apply for the homeowners exemption? I do believe it will also be cheaper to have my three vehicles registered in Indiana.

[Martha]

There are two relevant terms: domicile and resident. The general rule is that a person can have only one domicile but more than one residence. Each state has its own laws as to whether you are subject to their income taxes. Generally states have at least a presumption that if you are there a certain period of time, most frequently 180 days, or 183 days or 6 months, you are a resident for income tax purposes but you in fact may be taxed even sooner, when you become domiciled in a state, which may be as soon are move there and you intend to make that state your home.

A quick look at the internet (which may or may not be correct) indicates that Indiana's rules (for income tax purposes) about residency and domicile are:

The term “resident” means (a) any individual who was domiciled in Indiana
during the taxable year; (b) any individual who maintains a permanent place
of residence in Indiana and spends more than one hundred eighty three (183)
days of the taxable year in Indiana; (c) any estate of a deceased person
defined in (a) or (b); or (d) any trust which has a situs in Indiana.

* * *

A person has only one domicile at a given time even though that person
maintains more than one residence at that time. Once a domicile has been
established, it remains until the conditions necessary for a change of
domicile occur.

In order to establish a new domicile, the person must be physically present at
a place, and must have the simultaneous intent of establishing a home at that
place. It is not necessary that a person intend to remain there until death;
however, if the person, at the time of moving to the new location, has
definite plans to leave that new location, then no new domicile has been
established.

http://www.in.gov/dor/reference/files/ib55.pdf

This is just an introduction to the issues you face. You will have to look at both Illinois and Indiana rules and look at part year residency rules for filing of tax returns as well. My guess is that you will file tax returns in Illinois for the time you lived there and in Indiana once you move there, and any goofing around trying to maintain your domicile in Illinois after you have moved to Indiana to avoid taxes in Indiana may backfire. The last thing you want is to end up with liabilities in both states.

Just food for thought. As I emphasized, you need to look at all the rules carefully and I only pointed to some of the issues. See my signature line if you haven't already figured out that this is not legal advice.

[MichaelB]

Ripper, it’s not clear what you want. Most States don’t define residency with much precision and there usually is a fair amount of wiggle room. It sounds like you want to delay the change in residency, keep the Illinois homeowners exemption, not pay state tax on pension, but take advantage of Indiana lower auto registration fees. You can’t have it both ways.

You need to decide which state you want for primary residency until you sell your house in Illinois. That state is where you need to be registered to vote, have financial accounts domiciled and autos registered and insured. If it Illinois, you also need to keep track of the days spent in Indiana below the threshold Martha mentioned.

I don’t have a signature line – see Martha’s.

[SecondCor521]

The few times I have moved from state to state the state income taxes had provisions for partial year residents such that I effectively paid state income taxes to state A on any income earned up to my move date, then state income taxes to state B on any income earned after my move date. YMMV, seek a qualified expert, blah blah blah...

2Cor521

[Martha]

Quote:

Originally Posted by SecondCor521 The few times I have moved from state to state the state income taxes had provisions for partial year residents such that I effectively paid state income taxes to state A on any income earned up to my move date, then state income taxes to state B on any income earned after my move date. YMMV, seek a qualified expert, blah blah blah... 2Cor521

As it should be. It gets complicated when you have a home in more than one place or spend time in more than one place.

[MichaelB]

Quote:

Originally Posted by Martha It gets complicated when you have a home in more than one place or spend time in more than one place.

Right. Avoiding duplicate taxation is sometimes complex but usually can be achieved. Finding the lowest tax solution is more challenging. Trying to take advantage of different tax structures in more than one state isn't just complicated, it's often counterproductive.

Don't forget, State tax authorities are looking for revenue.