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Muni bonds when moving residence
Old 10-14-2022, 12:40 AM   #1
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Muni bonds when moving residence

Anyone know what happens to muni bond interest tax treatment when you move? This would be in an investment account, not a retirement account.

For example, I currently live in Indiana and have several muni bonds...longest term is 3 years. Let's say I move to another state, let's say North Carolina in June of next year. Obviously the interest for 2021 would still not be taxed in Indiana, my residence state. However, what happens for 2022? Does it depend which month you move in? Is there any "cross state reciprocity"? Would the interest be pro-rated in some way?

Right now this is a fairly small amount of money (maybe $80k), and we definitely would not be moving until at least only the 3 year munis would be not a big deal either way.

Thanks for any info.
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Old 10-14-2022, 11:14 AM   #2
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Depends on the partial year resident tax forms for your state(s).
I've done 2 methods: Assume you move in May... so 5 months in state X, 7 months in state Y.
a) (yearly income/12) * 5 = state X, (yearly income/12)*7= state Y
b) Credit the month the income was paid to the state you were living in at the time it paid. If all the bonds paid in Dec, all of the income is paid in state Y.
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Old 10-14-2022, 01:57 PM   #3
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If you own Indiana bonds, they are double tax free. If you move to NC, they become just Federally tax free. What happens in the transition year I am sure comes down to what Spock said.
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