While owning homes in several states is becoming more common, especially since the pandemic, it is important to be careful not to break state tax laws, writes Cheryl Winokur Munk for The Wall Street Journal.

People often buy their second home in a lower-tax state with the intent of living there and saving on taxes. However, since the higher-tax states do not want to lose any tax income, they are likely to ask for proof that the homeowner truly plans to make the new state their domicile, or permanent home base.

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According to Kelly Gillette, a partner in the Dallas office of accounting firm Armanino, tax rules can be especially complex for individuals who own homes in multiple states.

“Understanding the rules in advance of the move can save a lot of potential taxes and hassles at a later date,” she said.

After buying a home in a different state, the next step is to establish your domicile.

Rob Burnette, investment adviser representative and professional tax preparer at Outlook Financial Center, advises his clients to make the state where they spend more than 185 days their domicile. The domicile should be the state where you are registered to vote and where you have your driver’s license and car registration. You should also have your federal tax return and financial statements mailed to your domicile.

Basically, you need to have evidence that states “this is my state of domicile,” said Burnette.

Another important step is to keep detailed records and establish a strong paper trail to demonstrate that your domicile switch is legitimate.

States are employing more people and more resources, artificial intelligence included, in an effort to avoid missing out on tax revenue.

Things they will check include cell-phone records, credit-card data, doctors’ appointments, and highway-toll records. They will even talk to doormen.

“If you get audited, the records are going to save you or sink you,” said Gillette.

Read more about how to prevent your second home from becoming a tax trap in The Wall Street Journal.

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