Am I a resident?

I have been a California resident for many years. I've paid state income tax the whole time, and had various homes in California. I'm retired; my income comes entirely from investments, many of them are California tax-free muni bonds. I vote in California, and I have some relatives in California, but nobody very close by. A year ago, I built a vacation home in Arizona; I purchased and registered a car in Arizona (I have a car in California too, and my driver's license is from California). Over the last year, I've found I'm spending more time in Arizona and less time in California. This year, it looks like I'll be in Arizona just over 6 months, California about 5 months, and neither state the remainder. I like Arizona, and I'd like to be considered a resident of Arizona. Doing that would also have have some tax benefits for me. So, I'm looking into what it would take to be considered an Arizona resident. And more importantly, what it would take NOT to be considered a California resident anymore. If I take out a driver's license in Arizona, register to vote in Arizona, consider Arizona my main home, and continue to live in Arizona more than half of each year, am I an Arizona resident? Will California (properly) decide that I am still a California resident? Would it take selling my California home to renounce California residency? Does selling the CA tax-free bonds help? How does one STOP being a resident of California while still owning and occasionally occupying a home in California? If I take steps to show that my intent is to consider Arizona my main place of residence, how high is the risk that I'll wind up with both states considering me a resident or part-year resident? That's certainly not the goal. All help appreciated.
Ken
Reply to
Ken Meyer
The only way to be a part year resident is to move in or out of a given state. Whether you are a resident of a state can be a complex matter & has been the subject of much litigation. So, you should start by reading the instructions to the tax forms. It ususally indicates the criteria of being considered a resident. You should also take a look at the relevent court cases for your situation. ___________________________________
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Reply to
Benjamin Yazersky CPA
Keep in mind that California wants to keep collecting your tax money, so to them you are a resident. The best way to stop being a resident is to stay away. Even if you want to vacation in California, I recommend you move all your bank and investment accounts to Arizona (why not pick a state free of income and estate tax, while you are at it?), rent out you California house, and don't set foot in California for a couple of years. Then, after that, just visit briefly. This may be a bit of overkill, but then again, it might not.
Reply to
Gil Faver
California and Arizona have very similar statutory definitions of a resident for tax purposes. In either state, you are a resident if you are present in the state for a purpose that is not temporary or transitory. If you are domiciled in the state, you remain a resident if you are absent for a temporary purpose. A person who is present in the state for 9 months or more of the taxable year is presumed to be a resident, although the presumption can be overcome by proof that the presence is for a temporary purpose. According to the California regulations, the state of residence is the state where the taxpayer has the closest connection during the taxable year. Ariz. Rev. Stat. Ann. § 43-1011; Cal. Rev. & Tax. Code Sec. 17014; 18 Cal. Code Regs. Sec. 17014. In a situation like yours, the FTB would look at all of the facts and circumstances. An auditor would ask for all of your cancelled checks, credit card records, utility bills, investment records, etc to determine your "closest connection." As Gil suggested, the cleanest way to do this is to definitively change your domicile from California to Arizona. In order to do that, you must move away from California, move to Arizona, and intend to remain in Arizona permanently or indefinitely. Otherwise your domicile remains in California. The downside of that is that Arizona may then say you are a resident because when you are present there, you are present for a purpose that is not temporary or transitory. At the same time, California could say that when you are in California, that is also for a purpose that is not temporary or transitory. You could get into a situation where you are considered a resident by both states at the same time. In that case, both states would tax your investment and retirement income, and it is not likely that either would allow you any credit for taxes paid to the other. One of the facts the FTB would look at is the relative substantiality of your home in each state. In other words, if you own a substantial home in California and a condo in Arizona, that would be evidence that your primary residence is in California. If you want to do this, you should sever as many of your ties to California as possible, and create as many ties as possible to Arizona. As you suggested, register to vote in AZ (and actually vote there), register your cars there, get an Arizona driver's license, move your bank accounts to AZ, find doctors, dentists, accountant, lawyer, etc. in Arizona, and spend as little time as possible in California. Keep a diary and documentary records of your travels and the time you spend in each place and elsewhere. Air ticket confirmations, gas receipts, etc. should be retained to document travel to and from CA and elsewhere. If possible, any travel outside those two states should begin and end in AZ, not CA -- in other words, fly in and out of Phoenix, not a California airport. Renting your California house would be very helpful, but if you want to retain it as a vacation home, minimize the time you spend there, especially until the statute of limitations expires on the tax return for the year in which you change your residence. (That's 4 years in California.) Katie in San Diego
Reply to
Katie

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