Tax Implications of Changing State Residency

[Collin Argue]

I will be relocating to Florida later this year as part of my active duty military service. I am currently a Wisconsin resident, but I plan on becoming a legal resident of Florida to avoid paying income tax in the future. With regards to filing taxes for the 2021 fiscal year, can I still claim Florida residency if I only reside there for 4 or 5 months of 2021? What are the immediate tax implications of my residency change? Would it behoove me to arrive in Florida earlier and live their for 6 or more months of 2021? 

[Bob Norton]

@Collin Argue Military personnel are in a special category for resident status, so these comments specifically apply to active military.  

For 2021, you will file as a part-year resident of Wisconsin and Florida.  As active military, you will be considered a resident of the state that you register with the military, so make sure you take this step.  Also, once you are deployed outside of your resident state, you no longer pay taxes in that state and most states do not tax your military income while deployed.  

Where moving your residency will help you is when you purchase rental property, as this income is not exempt from state taxes while deployed in the military.  As a Wisconsin resident deployed to Florida, Wisconsin will most likely want to tax you on rentals you own outside of Wisconsin and give you a credit for taxes paid to the other state.  Since Florida does not have individual income taxes, you'd be paying Wisconsin taxes on Florida income.  By changing your residency to Florida, this situation will not occur.  If you own rental properties in Wisconsin, then Wisconsin will still get income tax from your rental income in that state.

As you move around the country and acquire rentals in different areas, being active military and a resident of Florida will mean that you only pay income taxes on your rentals located in income taxable states.