We would sell the home in VA, buy in MI, and rent in AZ. Would the rental in AZ count as a second home? Unsure what the tax implications are of spouses living in different states for most of the year.
If you sell your home in VA and move to MI, then you become a resident of MI on the day you begin living there. In the year of the move, you would file as a part-year resident in each of the two states and allocate your income accordingly. The state in which your main or primary residence is located is known as your state of domicile. Your domicile state can always tax all your income regardless of its source. You can have only one domicile at a time.
Other states can tax you as a non-resident on income you earn by physically working within their borders. And most will tax you as a resident if you live there for more than half the tax year. Being taxed as a resident means ALL your income is taxable by that state, as well as by your state of domicile.
A taxpayer renting and working in a non-domicile state would have to file both a non-resident tax return in that state (reporting the income earned there), plus a resident return in their home state (reporting all their income, including their earnings from the non-resident state). And if the taxpayer lived long enough in the non-resident state, they might have to file as a resident in each of two states, reporting all their income to each.
When a taxpayer has income that is taxed by two states, the domiciliary state will normally grant a credit on its tax return for taxes paid to the non-domicile state. This prevents double taxation, which is prohibited by federal law.
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