Dual State Residency for High-Net-Worth Investors

But is dual residency a smart move?

What are the potential risks? How does it actually work? Could it lead to being taxed in both states? What might you gain by adjusting your tax residency—and is it worth the effort?

What Is Meant by Dual State Residency?

How can someone have dual state residency?

Dual state residency occurs when an individual meets the residency criteria of two states at the same time.

Here’s how it works:

Your permanent home—legally referred to as your domicile—is the state you consider your true, fixed residence. A person can only have one domicile at a time. While each state sets its own rules for defining residency, most consider a resident to be someone who is present for reasons beyond temporary stays.

This is where things become more complex:

Renouncing residency in a high-tax state to reduce your tax burden isn’t always straightforward. Depending on state tax laws, you may still be considered a resident in both states and face potential dual taxation.

The definition of domicile may include specific factors, such as the number of days you spend in the state or the location of your primary home, family, and financial ties. These requirements vary from state to state.

And in some cases, it can be more challenging:

Certain states may tax all of your income, regardless of where it was earned. This can include wages, business income, and even investment gains.

That’s why careful tax planning is essential when considering dual residency. Understanding how each state defines residency and taxation will help you make informed decisions and avoid unexpected liabilities.

How State Taxes Apply to High Earners

While there are advantages to achieving high-income status, it also comes with certain tax considerations—particularly at the state level.

One notable federal policy is the Alternative Minimum Tax (AMT), which applies a flat rate to an adjusted calculation of taxable income above a specific threshold. However, beyond federal taxes, state-level taxation can significantly affect high-net-worth individuals, especially those with multimillion-dollar portfolios.

Here’s what you should know:

State income taxes are applied to income generated within a state. Depending on where you live or do business, states use either a flat tax rate or a progressive structure where higher income results in higher tax rates.

States with No Income Tax:

• Alaska
• Florida
• Nevada
• New Hampshire
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

Additionally, states like North Carolina, Michigan, Colorado, Kentucky, and Illinois apply flat tax rates, meaning all income is taxed at the same percentage.

Most other states, including Washington D.C., use progressive tax brackets, where high earners may be subject to tax rates that reach up to 14%, not including other state-level taxes such as property, sales, or fuel taxes.

For individuals whose net worth is growing into the seven- or eight-figure range, relocating to a state with no income tax may seem appealing. However, it’s important to remember that states without income tax often generate revenue through higher property taxes, sales taxes, and business-related taxes.

Careful, year-round tax planning can help high earners navigate these challenges effectively. Understanding how state policies affect your income, investments, and assets is a critical step in managing long-term financial goals.

How to Establish Dual State Residency

Let’s talk about domicile:

Under the 183-day rule used by many states, you may be considered a resident if you spend more than 183 days per year in that state, even if you maintain a home in another. This includes situations where you live in one state but work in another. If both states determine that you meet their residency criteria, you could face dual taxation.

To help avoid that outcome, it’s important to formally establish residency in the lower-tax state. Some steps commonly taken to demonstrate a new domicile include:

• Selling, listing, or renting out your former residence for an extended period
• Moving your personal belongings to the new residence
• Limiting travel to the former state (some states may even use phone records to track your presence)
• Purchasing and occupying a new home in the desired domicile state
• Registering to vote in your new state
• Getting a driver’s license issued by the new state
• Registering your vehicles in the new state
• Being employed in the new state
• Joining local clubs, foundations, or community organizations

Changing your state of residency is not automatic—it requires documented, consistent actions that demonstrate your intention to make the new state your permanent home.

Because residency rules and enforcement vary by state, it’s wise to consult with legal or tax professionals familiar with these matters. They can help guide your planning and reduce the risk of residency disputes or unexpected tax liabilities.

Statutory Residency and Presumption of Residency

As a high-earner, it’s important to understand how state residency laws can impact your tax obligations, particularly if you maintain homes in multiple states.

Statutory residency occurs when an individual meets specific legal criteria that define them as a resident of a state, even if that state is not their legal domicile. Typically, this applies if you maintain a permanent place of residence in the state or spend more than 183 days there. However, these rules can vary by state.

For example, New York applies statutory residency rules even to non-residents who own a vacation home in the state. Owning a home and spending sufficient time in New York may result in being taxed as a resident, without exempting you from taxes in your domicile state. While some tax credits may be available to offset double taxation, they may not eliminate the entire burden.

In California, spending more than nine months in the state during a year can be enough for the state to consider you a resident for tax purposes.

It’s not just income taxes to consider—estate and inheritance taxes may also be triggered by residency status.

For example:

• Illinois and New York impose estate taxes on in-state assets
• Florida, by contrast, does not impose a state-level estate tax
• Tangible property and real estate are generally taxed in the state where they’re located, based on your legal domicile

When residency is disputed, it may be possible to present contrary evidence to rebut presumptions made by the state. However, these cases can be complex.

To avoid unnecessary complications, understanding each state’s residency criteria—and how they intersect—is essential. Working with a financial advisor or tax professional can help you navigate these overlapping rules and reduce the likelihood of disputes.

Points to Take Home

When it comes to dual state residency, there is no guarantee that you’ll be recognized as a resident of your preferred state. Residency decisions are based on individual circumstances and state-specific criteria. Many states actively review and challenge residency changes to preserve tax revenue.

In short, some states closely examine claims of relocation, particularly when high earners are involved.

Because of the many variables, changing your residency status can be complex. Depending on your financial goals, priorities, and lifestyle preferences, relocation may not always be the best fit.

For example, while states like Wyoming and Florida do not levy state income taxes, choosing a new place to live also involves practical considerations about long-term living arrangements and quality of life.

Understanding the rules around dual residency, tax obligations, and relocation strategies is essential for high-net-worth individuals who wish to plan ahead. A financial advisor can help you assess residency options while also providing insight into how tax laws vary from state to state.