Relocating to a new state can be an exciting life change, but it also comes with a host of financial considerations, especially around taxes and estate planning. Whether you’re chasing better weather, a new job, or lower living costs, here are key implications to keep in mind before you pack up the moving van.
1. State income tax varies widely
States differ dramatically in how they tax income. A small handful do not levy a broad-based state income tax, but even then, the “tax picture” can include other items (like sales tax, property tax, and state-specific excise taxes).
Retirement income is also taxed differently. Some states offer exemptions or deductions, while others tax it more fully. If taxes are one of the reasons you’re considering a move, it can help to run the numbers with a professional as part of your tax planning.
If Washington is part of your move decision, you may also want to review how Washington’s capital gains excise tax works. For more context, see our post on Washington’s capital gains tax.
2. Residency determines tax liability
Your new state will likely consider you a resident once you establish a permanent home there. Common signals include:
- Registering to vote
- Getting a driver’s license
- Enrolling kids in school
- Changing your primary home and mailing address
Residency status helps determine which state can tax which income. In the year you move, you may need to file part-year returns (sometimes in more than one state).
3. Timing your income can matter in your move year
If you earned income in both states during the year, you’ll likely need to prorate it, allocating income to each state based on your residency period. This helps ensure you’re taxed appropriately by each state.
In some situations, the move year can open planning opportunities. For example, we’ve helped clients evaluate whether it made sense to accelerate certain taxable events (like Roth conversions or the sale of investments) before relocating. This can mean paying some federal income tax earlier than necessary, but potentially reducing future state income tax exposure once the move is complete. This is highly situation-specific, so coordinate with your advisor.
If you want a refresher on planning ahead, you may also like Tax Planning 101: Preparing for a Stronger Retirement.
4. Property and investment taxes can follow you
Property tax rates and rules vary by state and locality. If you keep property in your old state or rent it out, you may still owe taxes there. Also, owning property in another state can create added complexity for your estate, including the possibility of an additional probate process in that state.
This is a good moment to talk through trust and estate services, especially if you’re holding real estate across state lines.
5. Estate planning may need a refresh after a move
Estate and inheritance tax laws differ across states. A move is often a prompt to update your estate documents (wills, powers of attorney, trusts, and related items) so they align with your new state’s rules. Ideally, work with an attorney in your new state who focuses on estate planning.
It’s also worth looking at the practical side of settling an estate. Some states impose an estate or inheritance tax, others do not, and probate timelines and costs can vary widely. If you’re unsure where to start, our Trust and Estate planning team can help you organize the questions to bring to your attorney.
For a quick checklist, see The 5 Estate Planning Documents Everyone Should Have.
Final thoughts
Before moving, consult with your financial, tax, and legal advisors to assess the overall impact of the move. They can also help you spot planning opportunities that may exist before you establish residency elsewhere. Understanding the full tax landscape, including income, property, and investment taxes, can help you avoid surprises and make informed financial decisions.
If you’d like a second set of eyes before you relocate, we’re happy to help you connect the dots across financial planning, taxes, and your estate plan. Start a conversation with HFG Trust, and let’s keep it simple. Simplify Life.
