Thinking of "moving" to S. Dakota while traveling. Anyone here done this?

[Left Bank]

My wife and I would like to rent out our house in OR (high income tax state) post-Covid travel restrictions for 1-2yrs and do some slow global travelling with the added goal of trying out locations for potential retirement spots.  Most of our income is in the form of dividends.  The rent from our house would be under market rate as we would have a trusted friend here and he would take care of the property which is not insignificant.   What I would like to do is use a mail forwarding service in SD (no state income tax) as our official address while we are traveling and file from there as our primary address.  Does anyone here have experience doing this?  Thoughts? Recommendations?
Thanks for any helpful reply.
LB

[superd]

I’m pretty sure you would have to establish residency and get IDs, car registration, etc to have enough evidence that you moved to another state to avoid Oregon taxes.. that is... if you got audited

I was looking into it a few years ago for the same reasons and IIRC Nevada gives non resident IDs so maybe look into that

[Left Bank]

I’m pretty sure you would have to establish residency and get IDs, car registration, etc to have enough evidence that you moved to another state to avoid Oregon taxes.. that is... if you got audited

I was looking into it a few years ago for the same reasons and IIRC Nevada gives non resident IDs so maybe look into that

Yeah, I just found a website that walks you through to establish your residency, get your DL and car registration as well as take care of your mail ($110/yr).  It seems like a little bit of effort up front but then you'd be set. 

[JoJo]

Yes, SD is one of the easier states to do this.  You only have to spend a day there and you can get a drivers license.   I'm going 100% nomadic this year with no property owned so I'm probably going to use one of the mailbox services there.    Here is one company that lists the benefits of this (I can't endorse this company, I have not used them).  https://americasmailbox.com/sd_residency

The biggest downside I've found so far is the ACA compliant plans a quite expensive and limited networks in S.D. so you should look into that.

Other states that are often used for nomads, permanent RVer's are TX, FL, NV. 

[ROF Expat]

I haven't done this with Oregon and South Dakota, but I have switched residences between various states to live overseas.  I think the real question you need to ask is how hard Oregon tries to hold onto its taxpayers.  Whether South Dakota or some other state will give you "residence" or a drivers license is only half of the equation.  Oregon also has to agree that you are no longer a resident.  Some states (like Virginia) are well-known for aggressively questioning their taxpayers' moves and demanding their taxes.  If Oregon questions the legitimacy of your "move" to South Dakota, you might find yourself in a position where you have to deal with an audit and then owe back taxes and penalties. I think if you still own a home in Oregon that you previously resided in, claiming residence in another state in which you do not own property becomes harder to justify.  If you continue to own the house and are renting it out at a below market rate, are you planning to continue to claim homeowner deductions?  Do you benefit from homestead protections against property tax increases in Oregon?  Are you confident that you will never go back to live in that house in Oregon?  If you claim SD residence for a few years and then move back into your Oregon home, you might be setting yourself up for a claim by the State of Oregon that you never actually gave up your residence. 

I am in a similar circumstance in that I live overseas, but I continue to pay high state taxes because I don't want to sell my home in the US.  If I sold it, I could probably establish residence in a state without income tax, but as long as I own that home (which I lived in), I think that claiming to be a Texan or Floridian would be questioned and that I would lose. 

But maybe Oregon isn't very aggressive about following its residents and demanding its taxes.  If I were you, I'd be looking for very specific advice from Oregonians who have done what you're considering and I would ask a good lawyer and a good tax accountant to look at my specific case and advise me. 



   

[superd]

Just in case you didn’t know: the amount a renter pays above taxes, interest and maintenance expense is taxable income even if you have a mortgage and rent is less than the total you pay out each month.

So you would need to file out of state resident tax forms in Oregon for the rental income. I’ve had a couple years of partial year Oregon resident forms and turbo tax didn’t get them exactly right so I’d do a test run since that’s a not common form.

[Left Bank]

I haven't done this with Oregon and South Dakota, but I have switched residences between various states to live overseas.  I think the real question you need to ask is how hard Oregon tries to hold onto its taxpayers.  Whether South Dakota or some other state will give you "residence" or a drivers license is only half of the equation.  Oregon also has to agree that you are no longer a resident.  Some states (like Virginia) are well-known for aggressively questioning their taxpayers' moves and demanding their taxes.  If Oregon questions the legitimacy of your "move" to South Dakota, you might find yourself in a position where you have to deal with an audit and then owe back taxes and penalties. I think if you still own a home in Oregon that you previously resided in, claiming residence in another state in which you do not own property becomes harder to justify.  If you continue to own the house and are renting it out at a below market rate, are you planning to continue to claim homeowner deductions?  Do you benefit from homestead protections against property tax increases in Oregon?  Are you confident that you will never go back to live in that house in Oregon?  If you claim SD residence for a few years and then move back into your Oregon home, you might be setting yourself up for a claim by the State of Oregon that you never actually gave up your residence. 

I am in a similar circumstance in that I live overseas, but I continue to pay high state taxes because I don't want to sell my home in the US.  If I sold it, I could probably establish residence in a state without income tax, but as long as I own that home (which I lived in), I think that claiming to be a Texan or Floridian would be questioned and that I would lose. 

But maybe Oregon isn't very aggressive about following its residents and demanding its taxes.  If I were you, I'd be looking for very specific advice from Oregonians who have done what you're considering and I would ask a good lawyer and a good tax accountant to look at my specific case and advise me. 


Thanks for bringing this up.  I think you're right - I should get some solid tax/legal advice for this if I continue to own the home.



 

[ROF Expat]

Sometimes money spent on expert advice is money well spent.  Good lawyers and accountants can save you from mistakes and help you sleep better at night. 

As a previous poster observed, if you rent the house out, you will likely have to file an income tax form with Oregon for the income generated by your rental property.  It might raise eyebrows if you file for your house, but then claim that all your other income should be exempt from Oregon.  Again, you need to discuss that with an expert. 

One thing I'd look hard at is whether the absolute amount you pay in State tax is really so much that it is worth major efforts to get away from it, and whether you are considering all the associated benefits and costs.  If you are generating hundreds of thousands of dollars a year in dividends, I can see how it might make sense.  If your income is at a more normal level, you might find that some of the benefits associated with keeping your Oregon residency (or disadvantages with establishing residency elsewhere) balance things out at least partially.  Health insurance/ACA costs were mentioned previously, but there might be other things to consider, like in-state University tuition for kids.  I like having online access to my local library and try to download as many books as possible to my kindle so I am at least getting something tangible for my taxes. 

I feel your pain.  I am preparing my taxes right now, and I wince when I look at how much I pay in State and local income tax and property tax. 

[elysianfields]

Sometimes money spent on expert advice is money well spent.  Good lawyers and accountants can save you from mistakes and help you sleep better at night. 

As a previous poster observed, if you rent the house out, you will likely have to file an income tax form with Oregon for the income generated by your rental property.  It might raise eyebrows if you file for your house, but then claim that all your other income should be exempt from Oregon.  Again, you need to discuss that with an expert. 

One thing I'd look hard at is whether the absolute amount you pay in State tax is really so much that it is worth major efforts to get away from it, and whether you are considering all the associated benefits and costs.  If you are generating hundreds of thousands of dollars a year in dividends, I can see how it might make sense.  If your income is at a more normal level, you might find that some of the benefits associated with keeping your Oregon residency (or disadvantages with establishing residency elsewhere) balance things out at least partially.  Health insurance/ACA costs were mentioned previously, but there might be other things to consider, like in-state University tuition for kids.  I like having online access to my local library and try to download as many books as possible to my kindle so I am at least getting something tangible for my taxes. 

I feel your pain.  I am preparing my taxes right now, and I wince when I look at how much I pay in State and local income tax and property tax.

We're in the U.S. Foreign Service and joined from Northern Virginia.  Our house has been rented our entire time in the FS.

We considered switching our residence to FL, but in-state tuition in the Virginia system was important to us, and we don't mind paying taxes to improve education, water sanitation, mass transit, etc. in our jurisdiction.  Florida colleges don't match up well against VA schools, IMNSHO.

When we FIRE, we'll probably change states, however.  Stay tuned.

[superd]

Also.. if you change states residency also do research on what out of network coverage ACA plans have.. insurance companies in many states have gone to EPO networks where you have zero coverage outside of your home hospital network.

When I did research a couple years ago of all the west coast states, some plans included emergency services.. but that coverage will likely stop if it converts to an inpatient stay.  California had the best out of network coverage in their plans as of when I last checked

Out of network car crash with Multi day ICU visit can be bankrupting level event. As a fire’d former data scientist in health care... it happens more frequently than it should

If pacific source is in your county they have 25k out of network max on the plan I have , so that at least takes care of the bankruptcy level event

[JoJo]

@superd   I'm confused... assuming it was an approved medical reason, I would think the out of pocket maximum would kick in at this point, but you'd hit it sooner with out of network because you'd pay a higher percentage and it may not be at the negotiated rates of the network. 

[superd]

@superd   I'm confused... assuming it was an approved medical reason, I would think the out of pocket maximum would kick in at this point, but you'd hit it sooner with out of network because you'd pay a higher percentage and it may not be at the negotiated rates of the network.

There has been a trend over the past few years to have no out of network maximum as they’ve been switching to epo networks.

Here is an example of an aca plan in Nevada that has no out of network coverage other than ER and urgent care.  If an accident results in an ER visit that turns into extended ICU visit the insurance company has an out to deny the inpatient piece.

If you’re nomad’ing I would find a state that at least has a plan with an out of network max to cover a worst case scenario
 

[superd]

Here is an example of what it looks like when there is out of network max out of pocket

Sorry to hijack thread just wanted to clarify

[Left Bank]

@superd   I'm confused... assuming it was an approved medical reason, I would think the out of pocket maximum would kick in at this point, but you'd hit it sooner with out of network because you'd pay a higher percentage and it may not be at the negotiated rates of the network.
[/quote]

There has been a trend over the past few years to have no out of network maximum as they’ve been switching to epo networks.

Here is an example of an aca plan in Nevada that has no out of network coverage other than ER and urgent care.  If an accident results in an ER visit that turns into extended ICU visit the insurance company has an out to deny the inpatient piece.

If you’re nomad’ing I would find a state that at least has a plan with an out of network max to cover a worst case scenario
[/quote]



Thanks everyone for chiming in.  There is a lot to consider...and that's why I ask here, because I know there are questions  that I don't even know to ask.  Thank you.

We don't have kids, so no in/out of state tuitions to worry about.  As far as the amount of dividends, it will be about $70k this year and I know travelling will increase our monthly expenditures (at least, I would like it to) over our frugal spending staying home.  I would actually like to get more comfortable with spending in our retirement.  Our spending/WDR has been <<2%. 

Keeping our OR address and just paying the state taxes does seem easier but I have a hard time giving the state an extra $5K a year (state tax on $70K) for this convenience.

It turns out that we are likely going to have to rent the house at market rate and (hesitantly) have a property manager handle the property.  Given that, it seems like the documentation (rent receipts and a contract with a PM) for us not living here should be pretty solid for tax purposes but I will still consult a professional.   I have had out-of-state rentals before and know about having to file in OR for this income.

Superd, regarding healthcare that is really useful and don't mind a "hijack" that is so helpful.  I'll look into what our current plan includes as well as states with the OoP Max.  I really hate this complicated, fractured, expensive US healthcare system.  I am getting dual citizenship in the EU next year so I hope I will only have to deal with the US healthcare system for a while longer.

[Reynold]

There has been a trend over the past few years to have no out of network maximum as they’ve been switching to epo networks.

If you’re nomad’ing I would find a state that at least has a plan with an out of network max to cover a worst case scenario

This is the single biggest factor keeping us from retiring, we were thinking of snow birding, but our current state has no ACA plans with out of state coverage, and my spouse has ongoing health issues that have them seeing doctors fairly regularly. 

Is there any central place to find out which states have plans with out of network coverage?  Checking every plan for every state seems. . . daunting. . .

[Sid Hoffman]

I think the real question you need to ask is how hard Oregon tries to hold onto its taxpayers. ... Oregon also has to agree that you are no longer a resident.  Some states (like Virginia) are well-known for aggressively questioning their taxpayers' moves and demanding their taxes.

This is exactly what I was going to warn of as well. I'm in a snowbird state and it gets discussed a lot. Sites like this:

https://www.grfcpa.com/resource/establishing-residency-for-state-tax-purposes/

Make it pretty clear that ideally you need to fully cut ties with the state you're leaving including selling any property you own in that state. It's no hard and fast guarantee, and the other factor though is a lot of state and local governments are short on money right now from so many workers being jobless and high unemployment claims paid out. So even if Oregon was very willing to consider somebody non-resident in 2019, they might have updated rules so that now in 2021 with a different budget situation they could be aggressively going after property owners and saying they are still residents anyway.

From what I can tell, your new "home" state has no reason to help you declare you're not a resident of that state, nor does the federal government care about it because as long as they're getting their federal taxes, they do not care if you pay $0 state taxes or get triple charged by 3 different states. Not their problem.

So going back to establishing of residency, again that part where @OP mentions "use a mail forwarding service in SD as our official address" that gives Oregon all they need to prove they aren't a real resident of SD. They point to that and say "That's just a mailbox, not a residence. Your real residence is right here in Oregon" and they then have legal grounds to claim 100% of your worldwide income as Oregon state income, because Oregon is the only place you own a home.

I'm not saying they WILL do it, but the guide I posted a link to above aligns with so many stories I've heard and other websites which warn against playing games like holding on to one house while having just a lease somewhere else, or worse yet just a mail forwarding service as was proposed. Cutting ties 100% with Oregon would be the safer way to go so they can no longer point to anything at all as a claim you're still a resident.

[Paul der Krake]

Remember that the state isn't the only party who can argue this. You can too. Joe Taxpayer still has a rental house in Oregon, so what? Millions of Americans have property in a different state, that doesn't make them residents. Joe just needs to be more of a resident somewhere else.

Going to South Dakota for one day then immediately leaving is probably too far on the other extreme.

So how do you solve this? Well it's pretty clear that you need to consider the entire picture. There are a lot of easy things you can do:
- registering to vote
- getting a library card
- getting DLs and car registrations
- getting a bank account with local bank or credit union

And maybe the best way to "prove" residency is to... actually live in your new state, for at least a little while. I hear Alaska is glorious in the summer, maybe start there? Or the Florida keys in the winter? And obviously don't go back to your old state more often than your new one...

[ROF Expat]

Left Bank,

I hope you can reach a conclusion that works for you.  If you do end up consulting a professional, I think there would be a lot of interest in what advice you get, if it is something you can share.  I've been paying state tax for years, despite being overseas, largely because of my home ownership, and I'd love to find an alternative.  That said, the legal and accounting fees involved in fighting a challenge by my State for back taxes would offset a lot of tax savings even if I win my case.  Losing would, of course, cost a lot more.   

[Left Bank]

Good idea ROF.  I'll post up what I learn.  Are you renting out your house in the US? 

[ROF Expat]

Good idea ROF.  I'll post up what I learn.  Are you renting out your house in the US?

I rent out my house at market rate.  Unfortunately, it is not financially efficient.  It has extremely high maintenance and repair costs, and when you add in taxes, insurance, and management, it hasn't even broken even over the past few years.
The depreciation tax break is nice, but I will eventually have to pay that back.  There's no question that I would be far better off in financial terms selling the house, investing the money, and buying a different house when I return to the US.   

As I mentioned before, I would love to be able to claim a different state of residence that would reduce our tax burden.  In the past, I did that, but my circumstances were different.  I didn't own a home in the State I was leaving, I was moving overseas, and I had connections to the new State that would outweigh remaining attachments to the old state.  I don't think I'm in that position now.  Having lived in my house, even though I am renting it out at market rate and I live overseas, I think I would be inviting a challenge from the State if I tried to claim domicile in another state based on not much more than a drivers license and a p.o. box.  If I return to the State, I think it would be even more likely.  "Intention to return" is one of the fundamental points in defining domicile, and at this point, I might still return. 

On balance, I have decided not to take the risk of trying to change my domicile.  It also seems to me that whatever has worked in the past should not be considered a guarantee for the future.  Most states are fairly desperate for money right now and the limitations imposed on deductions for state and local tax are causing many people to rethink their states of residence.  In these circumstances, it isn't hard to imagine states that haven't been "sticky" in the past getting more interested in tracking down former taxpayers who they think are still residents. 

The calculus might be different for you.  Do keep in mind that this is not an "innocent until proven guilty" scenario.  If your former state challenges your decision with an audit, the onus is on you to "prove" that you are more resident in your new domicile than your old one, and simple things like a P.O. box and a driver's license might not be enough to win your case.  As I said before, getting state-specific advice tailored to your circumstances from experts would be money well spent.  I'd ask them very specifically what they think the likelihood of an audit would be, the likelihood of you winning if challenged, the cost of mounting a good defense, and the potential costs of losing.  I would also suggest asking how much keeping your house as a rental property (or selling it) affects the situation. 

Good luck!

[tawyer]

Not done it but considering it. The topic comes up on reddit FIRE subs quite a bit, this guide is quite good:
https://rvleaguers.com/how-to-establish-residency-in-south-dakota-as-a-full-time-traveler/

Oregon isn't one of the states that cling onto you with its cold dead hands (like Colorado, New Mexico, Virginia, and South Carolina), so I don't think owning a rental in  a different state is going to burn you:
https://brighttax.com/blog/best-state-tax-residency-for-us-expats/
I'd add California and New York to this list, based upon news reports.

[Roland of Gilead]

Did this pass as part of the relief bill?

"The compromise would take patients and their families out of the financial crosshairs by limiting what they can be billed for out-of-network services to a fee that’s based on in-network charges. The amount consumers pay would get counted toward their in-network annual deductible."

[Sid Hoffman]

Not done it but considering it. The topic comes up on reddit FIRE subs quite a bit, this guide is quite good:
https://rvleaguers.com/how-to-establish-residency-in-south-dakota-as-a-full-time-traveler/

I was going to ask why SD rather than Texas or Florida but his article specifically mentions Texas and Florida as good options as well, while listing the positives for SD as:

South Dakota explicitly allows and facilitates full-time travelers to become residents and voters and has these great perks:

*    No state income tax
*    Relatively low vehicle registration fees
*    Relatively low cost of insurance
*    You only have to return to the state once every five years to renew your license (though we think it’s worth spending more time there!)

I can see how for an RV'er the cost of vehicle registration and insurance is a huge part of the equation that perhaps isn't so much a factor for people who aren't specifically looking to drive around the country in an RV for years. Either way, it's good info, thanks for sharing!

[JoJo]

The really rich RVers do SD because there's not inheiritance tax, and then they set up an LLC in Montana to avoid paying sales taxes on their half million $ RVs. 

[superd]

Did this pass as part of the relief bill?

"The compromise would take patients and their families out of the financial crosshairs by limiting what they can be billed for out-of-network services to a fee that’s based on in-network charges. The amount consumers pay would get counted toward their in-network annual deductible."

Interesting, I didn’t hear about anything like that in the relief bill.  I’ve searched a couple of articles past few minutes and don’t see it mentioned. Where did you see that quote  ?

[Laura Ingalls]

We are considering it, but with the difference that we have lived in South Dakota before and have family there.  We may spend time there but not in the wintertime. 

I also know that I have a dentist and a family practice doctor that I feel comfortable with.

[AccidentialMustache]

If you convert your home to a rental and it isn't your residence, you may be giving up some of the tax breaks on appreciation for your home, if/when go you to sell it? Especially in what could be a hot west coast market, that could be way more than the state taxes. Ref: https://www.irs.gov/taxtopics/tc701

I don't know if you could claim it was your home but lease a room or two and keep the sale shelter in place or not. Consult a tax person (CPA, Attorney) on that one.

[terran]

If you convert your home to a rental and it isn't your residence, you may be giving up some of the tax breaks on appreciation for your home, if/when go you to sell it? Especially in what could be a hot west coast market, that could be way more than the state taxes. Ref: https://www.irs.gov/taxtopics/tc701

I don't know if you could claim it was your home but lease a room or two and keep the sale shelter in place or not. Consult a tax person (CPA, Attorney) on that one.

You have to live in the home as your primary residence for 2 of previous 5 years to get the the capital gains exclusion, so it doesn't really matter if you rent or not -- once you're past 3 years of not living someplace you won't have 2 years of living there to count unless you move back. 

[secondcor521]

Did this pass as part of the relief bill?

"The compromise would take patients and their families out of the financial crosshairs by limiting what they can be billed for out-of-network services to a fee that’s based on in-network charges. The amount consumers pay would get counted toward their in-network annual deductible."

Interesting, I didn’t hear about anything like that in the relief bill.  I’ve searched a couple of articles past few minutes and don’t see it mentioned. Where did you see that quote  ?

I'm not sure but the quoted reference sounds like it is referring to the "No Surprises Act", which is now law.  It was included as part of the Consolidated Appropriations Act of 2021, which did a lot of things but is probably most famous for being the coronavirus relief act which generated the second set of $600 per adult stimulus payments around December/January.

[MarciaB]

Just in case you didn’t know: the amount a renter pays above taxes, interest and maintenance expense is taxable income even if you have a mortgage and rent is less than the total you pay out each month.

So you would need to file out of state resident tax forms in Oregon for the rental income. I’ve had a couple years of partial year Oregon resident forms and turbo tax didn’t get them exactly right so I’d do a test run since that’s a not common form.

When I became nomadic I "moved" to WA from Oregon, but still had to file a return in Oregon for my rental property (my main source of income).