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If I move to a different state that has a different tax rate, how does that affect how my taxes are computed?

For example, I live in Massachusetts which has both income taxes and capital gains taxes. Let's say I move to New Hampshire, which has neither, in June of this year. Also, let's say I have realized a capital gain in April. When I compute my taxes for 2017 next year:

(1) do I pay income taxes in Massachusetts through June, or can I count the whole year as though I was a New Hampshire resident?

(2) do I have to pay a capital gains tax to Massachusetts on my April realized gain?

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It also depends on where you work.

If you move your home and your job then the date you establish residency in the new state is the key date. All income before that date is considered income for state 1, and all income on or after that date is income for state 2.

If there is a big difference in income you will want to clearly establish residency because it impacts your wallet. If they had the same rates moving wouldn't impact your wallet, but it would impact each state. So make sure when going from high tax state to low tax state that you register your vehicles, register to vote, get a new drivers license...

It becomes more complex if you move your home but not your job. In that case where you work might be the deciding factor. Same states have agreed that where you live is the deciding factor; in other cases it is not. For Virginia, Maryland, and DC you pay based on where you live if the two states involved are DC, MD, VA. But if you Live in Delaware and work in Virginia Virginia wants a cut of your income tax. So before you move you need to research reciprocity for the two states.

From Massachusetts information for Nonresident and Part-Year Resident Income, Exemptions, Deductions and Credits

  1. What is Massachusetts source income for nonresidents?

Massachusetts gross income includes items of income derived from sources within Massachusetts. This includes income:

  • derived from or effectively connected with any trade of business, including any employment carried on by the taxpayer in Massachusetts, whether or not the nonresident is actively engaged in a trade or business or employment in Massachusetts in the year in which the income is received;

a few questions later:

  1. How do I compute credit for taxes paid to another jurisdiction on income I earned while a part-year resident of Massachusetts?

Massachusetts residents and part-year residents are allowed a credit for taxes due to any other jurisdiction. The credit is available only on income reported and taxed on a Massachusetts return. Nonresidents may not claim the taxes paid to other jurisdiction credit on their Massachusetts Form 1-NR/PY.

The credit is allowed for income taxes paid to:

  • other states in the U.S.;
  • any territory or dependency of the U.S including Puerto Rico, the Virgin Islands, Guam, the District of Columbia;
  • Canada or any of its provinces; and
  • New Hampshire for business profits tax..

The credit is not allowed for: taxes paid to the U.S. government or a foreign country other than Canada; city or local tax; and interest and penalty paid to another jurisdiction.

The computation is based on comparing the Massachusetts income tax on income reported to the other jurisdiction to the actual tax paid to the other jurisdiction; the credit is limited to the smaller of these two numbers.

The other jurisdiction credit is a line item on the tax form but you must calculate it on the worksheet in the instruction booklet and also enter the credit information on the Schedule OJC.

So if you move your house to New Hampshire, but continue to work in Massachusetts you will owe income tax to Massachusetts for that income even after you move and establish residency in New Hampshire.

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I did the reverse several years ago, moving from NH to MA. You will need to file Form 1-NR/PY for 2017, reporting MA income as a part-year residence.

I assume you will need to report the April capital gain on your MA tax return, as you incurred the gain while a MA resident. (I am not a lawyer or tax professional, so I don't want to state anything about this as a fact, but I would be very surprised if moving after you incurred the gain would have any affect on where you report it.)

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