Domicile vs. Residency: An Important Distinction

Dec 13, 2023 | Community, Personal Finance

I look around my neighborhood in the summertime and I see an awful lot of cars with Florida license plates.  These are folks who have been my neighbors for years, and who are still my neighbors; they’re just “wintering” a little longer than they used to.  No need to wonder why.  They have changed their domicile from New Jersey, a state on the high end of income taxes and with an inheritance tax, to Florida, a state with neither personal income nor inheritance taxes.

What is domicile?  It’s the place that the individual considers as his (or her) permanent home.  It is the state that has legal jurisdiction over him: where he votes, pays taxes, registers his pets, and makes his will.

Well, it’s obvious why my neighbors wanted to make the change, but how did they do it?  Clearly they have homes in both New Jersey and Florida.  Residing in a state doesn’t establish domicile.  If the idea is to establish domicile away from a state with higher taxes where an owned or rented residence exists, it’s prudent to establish as many indicia of domicile as possible in the desired state of domicile since it is not unheard of for the higher taxing state to challenge the change.  How can that be done?

  • Spend more than 183 days of the year in the new state.
  • Make a new will.
  • Change voter registration, car registration, and driver’s license.  Surrender the old driver’s license and remove names from the voting rolls in the former state of domicile.
  • File federal Form 1040 from the new address.
  • Mark the last state personal income tax return before the change as “final”.  If there is subsequent income generated in the prior state of domicile, file a non-resident tax return in the old state (part-year resident and non-resident returns in the year of the change).
  • If permitted by law, file a written declaration of domicile in the new state. [1]
  • Change address with credit card companies, banks, social security etc.
  • File all local tax returns in the new state.

Unfortunately, there is no litmus test for domicile.  It is very important to do as much as possible to establish both residency and domicile in the new state and to relinquish the benefits of residency/domicile in the old one.  For example, a former New Jerseyan would not want to claim homestead benefits for a period after domicile changes.

As I was preparing this article, I remembered a fun fact about domicile.  Military members may retain their domicile when they enlisted throughout their military careers or change domicile to a state where they are stationed.  Sad to say, none of the military members I’ve had as clients has changed domicile to New Jersey.

Article contributed by Lois S. Fried, CPA, CFE, CVA, ABV

[1]The number one result of my Google search for “Declaration of Domicile” was the form that can be filled out to claim domicile in Broward County, Florida.

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