Tax Concerns for New Domicile

Real Property

Living in one state while claiming domicile in another could offer many benefits depending on the jurisdictions. Tax benefits are generally a prime factor when an individual considers claiming domicile outside their resident state. Unfortunately, a recent piece fromPhysician’s Money Digest highlights a growing number of tax investigations on domicile changes.

When executed properly, changing domicile is a legal and effective means of structuring one’s assets. However, some individuals take advantage of this opportunity. Proving a valid change in domicile generally centers on a few key areas:
  • Establishment in the new domicile. Real property, business interests, length of visits, and family can help establish a connection in a new domicile.
  • Intent. The individual should consistently move toward making their future residence in the new domicile. Voting registration, bank account changes of address, and real property acquisition help show the individual is intending to eventually complete the domicile change.
  • Abandonment. Evidence that the individual plans to abandon their old domicile might include the closing of bank accounts, relocation of personal property, driver license and vehicle registration in the new domicile, and more.
Domicile is not uniformly regulated across the country. Every state varies in their definitions and rules. For example, for income tax purposes in North Carolina, the statutes defining a resident state:
A long standing principle in tax administration, repeatedly upheld by the courts, is that an individual can have but one domicile; and, once established, it is not legally abandoned until a new one is established. A taxpayer may have several places of abode in a year, but at no time can an individual have more than one domicile. A mere intent or desire to make a change in domicile is not enough; voluntary and positive action must be taken.
An individual declaring out-of-state domicile should take every opportunity to clearly document their actions and intentions. If an individual has not yet changed their domicile, best practice includes a review with a tax attorney who is familiar with managing assets in multiple states.
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