For many people living in the colder climates of the United States, like us here in New York, it is a dream to own a second residence in a warmer, sunnier locale. But if people are not careful and learn the basics involved in this investment, their dream could become a nightmare.
Aside from the issues of choosing a place which you like by visiting more than once and spending serious time there; investigating health-care options; and thoroughly understanding the area; there are financial considerations, such as taxes. Some people believe that if they have a second residence which is in a state that does not collect income taxes, such as Texas and Florida and five other US states, they can save money by declaring their vacation home as their primary residence.
Not so simple says Clarence Kehoe, executive partner at the New York based, largest single-office accounting firm of Anchin, Block & Anchin. Just by saying your vacation home is your main place of residence does not necessarily make it so in the eyes of your state tax authority.
“You need to seek professional advice when figuring this out because each state varies and it’s really complicated” says Kehoe of Anchin.
Kehoe explains that the taxpayer needs to address two issues: what does it take to establish a new residency, and what must he do to end his residency in his previous abode? The Anchin Block partner goes on to say that establishing a new residence can involve some nuance, but generally living in the new residence more than half the year should do it.
Ending residency status can be much more complicated. After all, it means your old state will be losing you as a taxpayer, thus losing revenue. Anchin Block & Anchin’s Kehoe explains using New York State as an example:
“First they look at your days spent in New York and whether you maintain a permanent place of abode there; then they will also look at what your ‘intent’ is–is your new home really your permanent residence?” he says. In New York the following issues will be pursued by the tax authorities: Are most of your family business and social connections still in New York, do you still go to all your doctors in your home state, where do you keep possessions that are of value to you? “New York has recognized that people who say they move to Florida really are still New Yorkers” Kehoe says. “They raise tens of millions of dollars auditing people on this.” New York isn’t alone in this, so it’s important to talk to your tax adviser” he adds.