Don't forget you need to file Form 5695 to claim the Residential Energy Credits. The insulation and air sealing materials (including house wrap) go under the Energy Efficient Home Improvements section. Make sure the products meet the requirements - they need to meet criteria set by the International Energy Conservation Code.

Great thread everyone! I went through this exact situation last year with my 1960s ranch house. Here's what I learned after dealing with the IRS and my tax preparer: First, definitely get that itemized breakdown from your contractor if possible - it makes everything much cleaner. But if you can't, don't panic. The IRS accepts "reasonable allocation methods" as long as you document your approach. I ended up using a combination of the strategies mentioned here: contacted the insulation manufacturer for material quantity estimates, researched local retail prices for those materials, and documented everything in a spreadsheet showing my calculations. I also took photos of the packaging materials that were left behind, which helped verify the product specifications. One thing I didn't see mentioned - make sure your house wrap actually qualifies! Not all house wrap products meet the energy efficiency requirements. Check that yours has proper R-value ratings or vapor barrier specifications that qualify under the Energy Efficient Home Improvement Credit rules. Also keep in mind the credit phases down after 2032, so if you're planning more energy improvements, timing matters. The 30% rate is good through 2032, then drops to 22% in 2033-2034. Hope this helps - feel free to ask if you have specific questions about the documentation process!

Previous tax returns also matter if you have any unused credits that can be carried forward. I learned this the hard way - had a big capital loss in 2022 that I could've been applying to offset gains for the next few years, but I forgot about it completely when I switched tax software in 2023! Cost me a few hundred in extra taxes.

Your previous return can also flag potential audit triggers if there are big differences year to year. My income doubled between 2022 and 2023 and I got a letter from the IRS asking for documentation. Having my previous returns organized helped me respond quickly.

This discussion has been incredibly valuable - thanks for such detailed responses from everyone! I'm realizing this is much more complex than I initially thought, but the collective wisdom here is giving me a much clearer roadmap. A few key takeaways I'm getting: 1. The "soft transition" approach makes total sense - I was thinking too much about the technical requirements and not enough about creating a believable life story over time 2. The documentation burden is real but manageable if I start systematically from day one 3. Professional consultation with a SALT attorney (not just a CPA) seems essential given the potential audit risks 4. Trial period in State B before purchasing is smart - I need to know if I can actually handle this lifestyle long-term I'm now thinking this should be a 3-4 year transition rather than my original 1-2 year timeline. Better to establish genuine domicile slowly than rush and trigger red flags. One follow-up question for the group: For those who've gone through similar transitions, what was the biggest surprise or thing you wish you'd known upfront? I'm trying to anticipate challenges I haven't thought of yet. Also, does anyone have recommendations for finding SALT attorneys with multi-state residency experience? Should I be looking in State A, State B, or does it matter? The amount of expertise in this thread is amazing - this community is incredibly helpful for navigating these complex situations!

This has been such an incredibly comprehensive discussion! As someone who's been quietly following along and learning from everyone's experiences, I wanted to share a few additional considerations that might be helpful for your multi-state strategy. One thing I haven't seen mentioned is the potential impact of state franchise taxes or business registration fees if you're planning to have your employer register in State B. Some states have significant annual fees for business registrations that could offset some of your personal income tax savings, depending on your company's structure. Also, since you mentioned you're 15 years from retirement, consider how Social Security benefits are taxed in each of your target states. Some states don't tax Social Security at all, others have partial exemptions, and some tax it fully. This could be a significant factor in your long-term planning that goes beyond just current income tax considerations. I'd also suggest looking into each state's rules around homestead exemptions and property tax caps, especially for seniors. Some states offer significant property tax relief for retirees that could factor into your overall tax calculation. The community knowledge shared here has been amazing - the emphasis on documentation, authentic lifestyle changes, and professional guidance really drives home how complex these transitions can be. Your methodical approach and willingness to extend the timeline based on the advice here shows great wisdom. Better to do this right than face audit complications down the road! Have you given any thought to how you'll handle things like jury duty summons or other civic obligations that could arise in multiple states? These seemingly small details can become complications if you're not prepared for them.

Am I completely misunderstanding something? I thought Roth contributions were always made with after-tax dollars, so why would lowering your MAGI matter for contribution eligibility? Isn't the whole point that you pay taxes now so you don't pay them later in retirement?

Based on everyone's helpful responses here, it sounds like your $4,000 charitable donation alone won't help you get under the Roth IRA income limits unless you have other significant itemized deductions totaling over $14,600. Instead, I'd recommend focusing on "above-the-line" deductions that directly reduce your MAGI regardless of whether you itemize: 1. Max out your 401(k) contributions if your employer offers one ($23,500 limit for 2025) 2. Contribute to an HSA if you're eligible ($4,150 for individual coverage in 2025) 3. Consider a traditional IRA contribution if you're not covered by a workplace plan With your $142k income, you'd only need to reduce your MAGI by about $2,000-3,000 to get comfortably under the phase-out threshold. An HSA contribution alone could get you there while also giving you triple tax benefits (deductible contribution, tax-free growth, tax-free withdrawals for medical expenses). You could still make those charitable donations for the good causes you support, but don't count on them to help with your Roth eligibility unless you're already planning to itemize for other reasons.

Did anyone mention that you'll probably receive a 1099-R form from the insurance company? That form will show the taxable amount in Box 2a. If it says "Taxable amount not determined" and Box 2b is checked, you'll need to figure out the taxable portion yourself or with professional help. Also, depending on when your grandfather passed away, there might be estate tax considerations too, although that's only for very large estates (over $12.06 million for 2025).

I'm dealing with a similar situation right now with my grandmother's annuity, and one thing that really helped me was getting organized with all the paperwork first. Make sure you have copies of everything - the original annuity contract, death certificate, beneficiary designation forms, and any correspondence from the insurance company. The insurance company should provide you with a detailed breakdown showing the original premium payments (your grandfather's contributions) versus the accumulated earnings. This is crucial for determining what portion is taxable. Don't be afraid to call them multiple times if the first representative can't give you clear answers - I had to speak with three different people before I got someone who really understood the tax implications. Also, consider the timing of when you take the distribution. If you're expecting a raise or bonus this year that might push you into a higher tax bracket, it might make sense to delay the distribution until next year. The insurance company usually gives you some flexibility on timing as long as you stay within the required distribution rules. One last tip - keep detailed records of everything for your tax preparer. This isn't something you want to handle with basic tax software if it's a substantial amount.