How to leave Alabama residency?

Jameson Rader

Oct 10, 2024 — 5 min read

Leaving Alabama residency can offer new opportunities, whether you’re moving for a new job, lower taxes, or retirement. Alabama, like many states, taxes residents on their worldwide income, so if you’re planning to move to a state with no income tax, like Florida or Texas, it’s important to know how to officially sever ties with Alabama.

This guide will walk you through the steps of establishing a new domicile, cutting ties with Alabama, and managing any Alabama-sourced income after your move. Following these steps will help you avoid unnecessary taxes and make the transition smoother.

Step 1: Establish a new domicile

The first thing you need to do when leaving Alabama residency is to establish your new permanent home in another state. Moving physically is important, but it’s just the beginning. You’ll also need to make sure you officially show your new state as your permanent residence by taking a few crucial steps.

Here’s how to do it:

1) Establish new residency

Secure a residential address: Find a place to live in your new state, whether it’s through renting or buying a home. Many states, like Florida, offer tax benefits such as the homestead exemption, which could help lower your property taxes. Setting up a permanent residence in your new state is essential to proving that you’ve left Alabama.

SavvyNomad provides residential addresses in Florida, which can be a valuable service for individuals who need an official address while transitioning to a new domicile. This is especially useful for digital nomads and expats looking for tax benefits in a state like Florida.

File a Declaration of Domicile: Some states allow you to file a Declaration of Domicile to formally state that you now live there. This legal document can help reinforce your move, especially in states like Florida.

Residency guides:

2) Relocate your belongings

Moving personal items like your furniture, vehicles, and other household possessions to your new state shows that you are serious about making it your permanent home.

3) Spend time in your new state

Spending significant time in your new state shows you’ve made a real move. Make sure you’re spending more time there than in Alabama to avoid any confusion about where your primary residence is.

4) Transfer IDs and vehicle registrations

Transfer your driver’s license and vehicle registration to your new state. This is a key step in showing that you’ve established permanent residency.

5) Register to vote

Registering to vote in your new state is a clear indicator of residency. Don’t forget to cancel your voter registration in Alabama as well.

6) Update financial accounts

Notify your bank, credit card companies, and other financial institutions of your new address. Keeping all your financial documents up to date with your new residency helps confirm your move.

7) Notify your employer

Let your employer know about your new address so they can update your payroll and tax withholdings to your new state. This will help make sure Alabama doesn’t withhold state income taxes after your move.

Step 2: Sever ties with Alabama

Once you’ve established your new domicile in another state, the next step is to officially cut ties with Alabama. This ensures that the state no longer considers you a resident for tax purposes.

Here are the key steps you need to take:

1) Close Alabama financial ties

Close local bank accounts: If you have any bank accounts or financial assets based in Alabama, consider closing them or transferring the funds to banks in your new state. This shows that your financial life is now centered in your new state, not Alabama.
Update personal records: Update your address with the IRS, Social Security, and any other relevant entities. Keeping all personal and financial records in your new state helps solidify your move.

2) Sell or lease property

If you own property in Alabama, selling it is a strong signal that you are no longer a resident. If selling isn’t an option, leasing the property long-term can also help show that you no longer live there.

3) Cancel local subscriptions/services

Make sure to cancel any subscriptions or memberships tied to Alabama, such as gym memberships, utilities, or local services. Keeping these active could suggest that you still have ties to the state.

4) Transfer healthcare and insurance

Move your healthcare services and providers to your new state. Transferring these essential services further strengthens your case that your daily life is now based elsewhere.

Step 3: Time spent outside Alabama

Once you’ve established your new domicile and severed ties with Alabama, it’s important to manage the time you spend in the state to avoid being considered a resident for tax purposes. Alabama uses the 183-day rule, which is a common standard used by many states to determine residency.

183-day rule

What is the 183-day rule?: If you spend 183 days or more in Alabama in a calendar year, you may be considered a resident for tax purposes, even if you’ve moved to another state. This means you could be liable for state income taxes.
Stay under the 183-day limit: To avoid being taxed as a resident, you’ll want to make sure you spend fewer than 183 days in Alabama each year. A day counts as any part of a 24-hour period spent in the state, so even short visits can add to your total.

Keep detailed travel records

Why it’s important: If your residency status is ever questioned, having detailed records of your time spent in and out of Alabama will be essential for proving that you’ve stayed under the 183-day limit.
What to track: Save flight tickets, hotel receipts, and any other travel documents that show when you entered and left Alabama. Having a detailed log of your movements will be helpful if your residency status is ever audited by Alabama’s Department of Revenue.

Step 4: Alabama-sourced income

Even after leaving Alabama, you may still have income connected to the state, such as rental or business income. It’s important to handle Alabama-sourced income correctly to stay compliant with state tax laws.

Here’s how to handle Alabama-sourced income once you’ve moved:

1) Ongoing tax responsibilities

File non-resident tax returns: If you continue to earn income from sources within Alabama, such as rental properties or businesses, you’ll need to file non-resident tax returns. This ensures that Alabama only taxes the income you earned within the state, not the income from your new home state.
Tax on Alabama-sourced income: Even though you are no longer a resident, Alabama still has the right to tax income generated within the state. This could include wages earned in Alabama, rental income, or profits from Alabama-based businesses.

2) Rental or business income

If you own rental property or a business in Alabama, any income generated from those sources will still be subject to Alabama state taxes. It’s important to consult with a tax professional to ensure compliance with Alabama tax laws, especially if you have complex income streams that tie back to the state.