Domicile

DEFINITION of 'Domicile'

A domicile is a person's primary residence for tax purposes, and it is established, in part, via a driver's license, voter registration and bank accounts. It may also be the address of record for credit cards and other bills. Although most people do, it is not necessary that people live in their listed domiciles.

BREAKING DOWN 'Domicile'

Some taxpayers in upper income brackets change their official domicile to avoid paying high taxes. In 2012, Facebook co-founder Eduardo Saverin drew just such suspicion when he renounced his United States citizenship immediately prior to Facebook's IPO. Saverin established a home in Singapore that has no capital gains tax. This resulted in a significant tax break for Saverin because the long-term capital gains tax for Americans with incomes equivalent to Saverin's is a minimum of 15%.

Reasons Domicile Is Important

In addition to affecting federal and state taxes, domicile impacts legal issues ranging from divorce to probate matters. For example, in some states, estate beneficiaries must pay a state tax on the assets of the estate. Since not all states have an estate tax, survivors can retain more of their inheritance if the decedent was domiciled in a non taxation state. Probate must also be initiated in the deceased individual's state and county of domicile. To remove ambiguity, many wills contain a specific statement about the decedent's domicile.

Divorce laws vary from state to state. While some states look at domicile to determine whether the state has jurisdiction, others look at residency, which may be determined by the number of days per year an individual spends in the state. If domicile is used to establish jurisdiction, it affects child support and visitation issues, as well as property division. In cases of contested child custody, parents may argue over domicile as each attempts to have the case heard in the state that is most favorable to his or her side.

Domicile may also determine school attendance boundaries, eligibility for homestead exemptions and other issues. Either residency or domicile may be used to determine tuition rates for in-state and out-of-state students at universities, depending on the state's policy.

Factors That Determine Domicile

Determining domicile can be a complicated issue when taxpayers have multiple homes in different jurisdictions. Regardless of how many homes a person owns, only one can be categorized as the domicile. This is the place where the resident intends to return, no matter where he travels or how long he stays away. Although the homeowner might spend the majority of his time in other locations, the intent to make a specific location his permanent residence is a key factor in establishing domicile.

In situations involving contested domicile, several factors can be helpful. Tax returns listing the permanent address are important evidence, along with auto, home and life insurance policies. Getting a driver's license in a particular state is another indication of intent to establish domicile.

RELATED TERMS
  1. Admitted Company

    An insurance company that is domiciled in one state but is admitted ...
  2. Home (legal definition)

    A home is the place where a person has their permanent primary ...
  3. Interdistrict Settlement Account

    A clearing account that the Federal Reserve maintains to facilitate ...
  4. Resident Relative

    Spouses and relatives that an insured party shares a residence ...
  5. Halloween Massacre

    Canada's decision to tax all income trusts domiciled in Canada. ...
  6. Tax Exporting

    The raising of revenue for one jurisdiction through the levying ...
Related Articles
  1. Markets

    Renouncing Your Citizenship: Madness Or Sanity?

    Here's a breakdown of when it might be a good idea to give up your citizenship.
  2. Personal Finance

    9 States Where You'll Pay the Most in Taxes

    Which state you live in can mean thousands of dollars saved or lost in taxes each year. Here's a list of states to avoid when it comes to tax rates.
  3. Markets

    3 Ways Tax Haven Governments Make Money

    If the governments of tax haven countries impose little, or no, income taxes, how exactly do these nations generate revenue?
  4. Financial Advisor

    An in Depth Look at How Inheritances Are Taxed

    The tax implications of an inheritance can be complex. Here's what beneficiaries need to know.
  5. Financial Advisor

    State Taxes Retirees Should Know About

    State taxes plays a critical role in the quality of life of retirees. Here's what to consider.
  6. Retirement

    Finding A Retirement-Friendly State

    Which states are tax-effective retirement locales? It depends on the source of your retirement income.
  7. Personal Finance

    8 States With Estate Taxes

    Understand the difference between the federal estate tax and state-specific estate taxes. Learn about some of the worst states with estate taxes.
  8. Personal Finance

    Estate Taxes: Who's on the Hook?

    Inheritance taxes can be tricky. Most people have to deal with them at a very inconvenient time. It's better to learn the laws now so you're ready later.
  9. Personal Finance

    The 7 Best States For Property Taxes, and Why

    Understand why some states have high property taxes while others have low property taxes. Learn about the states with the lowest property taxes.
  10. Managing Wealth

    Investment Tax Basics For All Investors

    Nothing can be said to be certain, except death and taxes even in your investments.
RELATED FAQS
  1. All of the following statements are true with respect to the various ways that equity ...

    The correct answer is: b) Global investing is the proper definition for investing in stocks from all over the world. International ... Read Answer >>
  2. What would the estate tax be on life insurance policy of $25,000?

    $25,000 was paid to the beneficiary of a life insurance policy. What would the estate tax be and do you have to pay an estate ... Read Answer >>
  3. What is the difference between income tax and capital gains tax?

  4. Do we have to pay capital gains tax?

    My wife and I are 83 years old. We will sell our home for about $400,000. Will we pay capital gains tax when moving to an ... Read Answer >>
  5. How are life insurance proceeds taxed?

  6. If I haven't realized capital gains from selling a primary residence in the last ...

    My husband and I owned a home, sold it in 2013, and now we are considering buying a home but are uncertain of whether we ... Read Answer >>
Trading Center