Business

The hidden risks of moving to a lower-tax state

By Robert Powell, CFP - Retirement, Senior Editor TheStreet

Updated May 5, 2026 1:09 PM

Is it worth moving from a high-tax state to a lower-tax state?

That's the question Jeffrey Levine, chief planning officer of Focus Partners Wealth, discussed in a recent episode of Focus on Finance Forum.

According to Levine, the answer depends on one's sources of income and how the lower-tax state treats those sources.

Below is a transcript of the interview, edited for clarity and brevity.

Why income sources matter

Jeffrey Levine: Why are income sources so important?

Robert Powell: Because states tax different types of income differently. Some people say Illinois is a high-tax state, but it doesn't tax IRA distributions. So if most of your income comes from an IRA, it may not be a high-tax state for you.

You also need to look at your total tax burden. For example, some people in Massachusetts think about moving to New Hampshire because there's no personal income tax. But property taxes there can be higher, so you have to look at the full picture.

Taxes are only part of the decision

Jeffrey Levine: Exactly. It's not just about taxes. There's also enjoyment and lifestyle. If affordability is an issue, moving may make sense. But many people don't have to move. They just think they should.

I had a client who moved from New York to California, which is also a high-tax state. Why? Their kids and grandkids were there. The tax difference didn't matter.

So lifestyle, family, and personal priorities play a big role.

Robert Powell: Right. Weather, entertainment, health care access, and proximity to family and friends often drive the decision as much as money.

Understanding domicile and residency

Jeffrey Levine: Let's get into the mechanics. The first concept to understand is domicile. That's the place you intend to make your permanent home.

The challenge is that intent can be subjective, which creates gray areas. Many people think if they spend a certain number of days in a new state, they automatically become residents there. That's not true.

You can be taxed by a state if you are domiciled there, even if you spend time elsewhere. For example, if you live in Massachusetts but work in California for a year, Massachusetts may still consider you a resident.

Avoiding common residency mistakes

Jeffrey Levine: States may require you to file returns even if you think you've moved. They may also offer credits to avoid double taxation, but both states can still claim jurisdiction.

If you want to make things simple, the cleanest approach is to fully leave your old state. Sell your home, move your belongings, establish new doctors, and shift your life to the new state. That makes it clear you've moved.

If you split time between two states, you need to build a "preponderance of evidence" that your new state is your primary home.

What counts as evidence

Jeffrey Levine: Time spent in each state is just one factor. Other factors include:

Where your doctors are
Where you worship
Where your financial accounts are
Where your personal belongings are

There's even a case where a taxpayer's domicile was determined when they moved their dog. States look at what is "near and dear" to you.

Robert Powell: So if you don't fully relocate, you could be treated as a snowbird and still face tax complications.

Snowbirds and dual-state issues

Robert Powell: Many people split time between states, like someone with a home in Illinois and another in Arizona. They may try to spend more than half the year in the lower-tax state.

But what about estate or inheritance taxes? That can complicate things further.

Jeffrey Levine: It comes down to domicile and where your property is located. Sometimes two states both claim you as a resident. That can create serious complications.

Residency audits and professional help

Jeffrey Levine: Residency audits can be challenging. You're trying to prove intent, which is difficult. That's why it's important to document everything.

There are attorneys and CPAs who specialize in residency issues. Some states, like California, are particularly aggressive because they don't want to lose tax revenue.

Do it the right way

Jeffrey Levine: This isn't meant to scare people. People move all the time. But you want to do it the right way and understand how to position yourself to receive the tax benefits you expect.

Robert Powell: It sounds simple at first, but like many things in personal finance, there's a lot beneath the surface.

Jeffrey Levine: Exactly. It's about taxes, income types, and lifestyle. That's why it's called personal finance.

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This story was originally published May 5, 2026 at 12:47 PM.