Real Estate

• If you have homes in two different states, you have the responsibility of proving which of these homes your primary residency is. When you sell your home, you may exclude from taxation up to $250,000 ($500,000 if married filing jointly) of the profits from the sale of the primary home. However for the Internal Revenue Services to consider a home as the principal home, you must have had ownership and occupied the home for two or more years. You also have to have owned and occupied the home during the five years before selling the home.
  
  

Residence and Nonresidence

• The state where you live and intend to make your home is your resident state. This state taxes all your personal services income. The state where you work or earn an income in is your nonresident state and requires you to file a nonresident tax return on your income. When you live in one state and work in another or have property in another, you may have to file tax returns for both states unless there is a reciprocal arrangement.
  
  

Reciprocal

• Most states have a reciprocal tax return arrangement. For example if State X and State Z were in such an agreement, you may request exemption State X (nonresident state) income tax withholding. Consequently, state tax authorities would only require you to file a tax return in State Z, which is your resident state. States use the reciprocal arrangement to simplify the often cumbersome procedure of filing tax returns when you live and work in different states.
  
  

Income-Tax-Free States

• There are states which do not tax your personal income. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. However, it is important to note that your income is only nontaxable if you live and work in these states. Therefore, if you live or work in the other 41 states, then the resident state will tax some of your income. For example, if you live in Florida and work in New York, you will pay for the income taxes earned in New York.