Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Taxes and dual residence?
Old 09-12-2011, 07:47 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,984
Taxes and dual residence?

I have to believe this has been addressed here, but I haven't found it using search here or Google. We're planning to rent in NC for a year or more, and keep our home in IN for most of not all that time. I assume I am stuck prop taxes on the home even though we won't be the house. But how will (investment) income taxes work between the two states, I sure don't want to pay both in full. And if also have work income in NC, I assume that won't be taxed in IN. Anyone know where to find a summary, I know millions of snowbirds have faced this...
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-12-2011, 08:04 AM   #2
Thinks s/he gets paid by the post
Brett_Cameron's Avatar
 
Join Date: May 2011
Location: South Eastern USA
Posts: 1,010
I know for the situation where Mississippi is one of the states, you file in both states and there is a coordination of taxes so you are not taxed on all income in both states or there is a credit for taxes paid to another state. It has been a long time since I have done that and my memory is fuzzy. I would check with the Indiana and North Caroline state tax commission websites and see if there are instructions on how to do that.
__________________

__________________
Brett_Cameron is offline   Reply With Quote
Old 09-12-2011, 08:16 AM   #3
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,492
No summary, but many threads here, also over at Bogleheads and RADDR's. When you search, try state+tax+residency.

There is no general answer to your question because each state has its own tax policy and most states do not define residency - they leave it up to you to define where your primary residence is. Generally speaking, you will need to pay tax on earned income to the state where the employment is located and to the state where your primary residence is located. Most tax on earned income is creditable between states to avoid double taxations. Most unearned income is only subject to tax in the state of primary residence.

You establish primary residence by domiciling your financial accounts, voting registration, and driver’s license. Property taxes may be subject to homestead exemptions which require you to forgo favorable rates if not your primary residence.
__________________
MichaelB is offline   Reply With Quote
Old 09-12-2011, 01:03 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,202
I have two slightly different takes on this.

I had a co-worker who wanted to establish residency in a different state and exercise his stock options in that tax free state. He consulted a tax attorney who advised him to completely sever ties with his current state. Sell his house and make it so his intent was to not return to the state (in other words, don't just rent out his house, because that would make it appear too easy that he could come back). Register his car, vote, go to doctors and dentists, and all that, in the new state as quickly as possible. He also said that it was very possible that the state would come back to him and declare that the options were earned while in the old state, but he didn't feel that would hold up.

In my case, I was already leaving NC, building in VA, but circumstances had me splitting time in TX for a few years. I just registered everything in Texas, voted there, spend 183 or more days there, and called VA my vacation/non-residence home. One year VA actually sent me a tax bill, claiming that I had filed federal taxes with a VA address. I told them, no I filed with a TX address, and said they must've seen my property taxes on my VA vacation home, but I wasn't a resident and did not owe the taxes. I never heard from them again, and started paying VA taxes when I moved there full time.
__________________
RunningBum is offline   Reply With Quote
Old 09-13-2011, 07:39 AM   #5
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,535
I would think and am pretty sure it should be prorated between the states based on number of days you lived in each state.
__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 09-13-2011, 10:04 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,202
If you move from one state to another mid-year, it is prorated, at least in every state I've been in.

If you have 2 permanent places for the whole year, that's different. If one is a vacation home that you spend 2 weeks and a few weekends, are you going to prorate taxes for the 20-30 days you were there? What's the cutoff? 50 days? 100? I don't remember anymore if I specifically read something about it, but I set up one home as my primary residence and used that for tax purposes.
__________________
RunningBum is offline   Reply With Quote
Old 09-13-2011, 10:26 AM   #7
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
You can game this.

Many wealthy people do. For example, I know that George W. Bush lives in Kinneybunkport Maine, but spends two weeks every year (in a hotel) in Houston Texas. Texas has no state income tax and I supect George B declares Texas as his residence and pays little to Maine.

Perhaps a good CPA can save you some real money here. It's worth speaking to one.
__________________
MasterBlaster is offline   Reply With Quote
Old 09-13-2011, 12:05 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,202
George W has a ranch in Crawford and I think he may also have a home in Dallas.

George HW spends summers at Kennebunkport but I think he still lives mostly in Tanglewood in Houston.

I suspect both legitimately declare Texas as their residence.
__________________
RunningBum is offline   Reply With Quote
Old 09-13-2011, 02:45 PM   #9
Thinks s/he gets paid by the post
frayne's Avatar
 
Join Date: Oct 2002
Location: 19th Hole
Posts: 2,535
You may want to google "tax home" and see how or if it applies to state tax ?
__________________
A totally unblemished life is only for saints.
frayne is offline   Reply With Quote
Old 09-13-2011, 03:13 PM   #10
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Quote:
Originally Posted by RunningBum View Post
George W has a ranch in Crawford and I think he may also have a home in Dallas.

George HW spends summers at Kennebunkport but I think he still lives mostly in Tanglewood in Houston.

I suspect both legitimately declare Texas as their residence.
You are so right, Sorry for that little slip.
__________________
MasterBlaster is offline   Reply With Quote
Old 09-13-2011, 05:17 PM   #11
Recycles dryer sheets
 
Join Date: Jul 2010
Posts: 255
MichaelB is correct. However, some states provide guidance that is policy based - not statutory. Indiana provides a policy and North Carolina has specific statutes. If you have a large liquidity event seek the advise of someone the specializes in this area. Both states have some fairly specific guidance.

The following is Indiana's policy:

Full-year residents

If you were a full-year resident of Indiana and your gross income (the total of all your income before deductions) was greater than your total exemptions, you must file an Indiana tax return.
Full-year residents must file Form IT-40, Indiana Full-Year Resident Individual Income Tax Return or Form IT-40EZ for Full-Year Indiana Resident Filers with No Dependents. If you filed a 2010 federal Form 1040EZ, were a full-year resident of Indiana, claim only the renter's deduction and/or unemployment compensation deduction, and have only Indiana state and county tax withholding credits and/or an earned income credit, then you should file the simplified Form IT-40EZ. If you are not eligible to file Form IT-40EZ, have any add-backs or other deductions or credits, you must file Form IT-40.
You are a full-year Indiana resident if you maintain your legal residence in Indiana from Jan. 1 — Dec. 31 of the tax year. You do not have to be physically present in Indiana the entire year to be considered a full-year resident. Residents, including military personnel, who leave Indiana for a temporary stay, are considered residents during their absence.
Retired persons spending the winter months in another state may still be full-year residents if:
  • They maintain their legal residence in Indiana and intend to return to Indiana during part of the taxable year,
  • They retain their Indiana driver's license,
  • They retain their Indiana voting rights, and/or
  • They claim a homestead deduction on their Indiana home for property tax purposes.
Indiana allows $1,000 for each exemption claimed on your federal return, plus an additional $1,500 for certain dependent children (see instructions on page 22 for more information). If you did not have to file a federal return, you should complete a “sample” federal return to see how many exemptions you are eligible to claim.
If your gross income is less than your total exemptions, you are not required to file. However, you may want to file a return to get a refund of any state and/or county tax withheld by your employer, or other refundable credits, such as an earned income credit.
Part-year residents and full-year nonresidents

If you were a part-year resident and received income while you lived in Indiana, you must file Indiana Form IT-40PNR, Part-Year Resident or Nonresident Individual Income Tax Return.
If you were a legal resident of another state (exception: see next paragraph) and had income from Indiana (except certain interest, dividends, or retirement income), you must file Form IT-40PNR.

**********************************************
The following is a portion of the applicable law for NC:

6B.3901. Definition of resident.

(a) Only one domicile.—Domicile means the place where an individual has a true, fixed permanent home and principal establishment, and to which place, whenever absent, the individual has the intention of returning. In many cases, a determination must be made as to when or whether a domicile has been abandoned. A long standing principle in tax administration, repeatedly upheld by the courts, is that an individual can have but one domicile; and, once established, it is not legally abandoned until a new one is established. A taxpayer may have several places of abode in a year, but at no time can an individual have more than one domicile. A mere intent or desire to make a change in domicile is not enough; voluntary and positive action must be taken.
(b) Factors.—Some of the tests or factors to be considered in determining the legal residence of an individual for income tax purposes are as follows:
(1) Place of birth of the taxpayer, the taxpayer's spouse, and the taxpayer's children.
(2) Permanent residence of the taxpayer's parents.
(3) Family connections and close friends.
(4) Address used for federal tax returns, military purposes, passports, driver's license, vehicle registrations, insurance policies, professional licenses or certificates, subscriptions for newspapers, magazines, and other publications, and monthly statements for credit cards, utilities, bank accounts, loans, insurance, or any other bill or item that requires a response.
(5) Civic ties, such as church membership, club membership, or lodge membership.
(6) Professional ties, such as licensure by a licensing agency or membership in a business association.
(7) Payment of state income taxes.
(8) Place of employment or, if self-employed, place where business is conducted.
(9) Location of healthcare providers, such as doctors, dentists, veterinarians, and pharmacists.
(10) Voter registration and ballots cast, whether in person or by absentee ballot.
(11) Occasional visits or spending one's leave “at home” if a member of the armed services.
(12) Ownership of a home, insuring a home as a primary residence, or deferring gain on the sale of a home as a primary residence.
(13) Location of pets.
(14) Attendance of the taxpayer or the taxpayer's children at State supported colleges or universities on a basis of residence—taking advantage of lower tuition fees.
(15) Location of activities for everyday “hometown” living, such as grocery shopping, haircuts, video rentals, dry cleaning, fueling vehicles, and automated banking transactions.
(16) Utility usage, including electricity, gas, telecommunications, and cable television.
(c) When change occurs.—The following events indicate a change in residency:
(1) Selling a house and buying a new one.
(2) Directing the U.S. Postal Service to forward mail to a new address.
(3) Notifying senders of statements, bills, subscriptions, and similar items of a new address.
(4) Transferring family medical records to a new healthcare provider.
(5) Registering a vehicle in a new jurisdiction.
(6) Transferring memberships for church, a health club, a lodge, or a similar activity.
(7) Applying for professional certifications in a new jurisdiction.
(d) Military service.—A legal resident of North Carolina serving in the United States Armed Forces is liable for North Carolina income tax and North Carolina income tax shall be withheld from that individual's military pay whether the individual is stationed in this State or in some other state or country. An individual who enters military service while a resident of North Carolina is presumed to be a resident of this State for income tax purposes. Residency in this State is not abandoned until residency is established elsewhere. To change residency, an individual in military service must not only be present in the new location with the intention of making it a new domicile, but must also factually establish that the individual has done so.
(17 NCAC 6B.3901 revised eff. 6-1-93; 7-1-99; 8-1-02.)
__________________
SunsetSail is offline   Reply With Quote
Old 09-13-2011, 05:27 PM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,984
Thank you all, the tax code sections don't look good for me. Even though I would only be a renter in NC, it appears I could be stuck with much higher taxes. Not trying to avoid taxes, but I certainly don't want to pay two states on the same income. Since we would still own a home in IN, it appears we're on the hook to IN even if we're not physically there for the entire year. I just need to search and read more tax code.
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Old 09-13-2011, 10:17 PM   #13
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,492
Quote:
Originally Posted by SunsetSail View Post
However, some states provide guidance that is policy based - not statutory. Indiana provides a policy and North Carolina has specific statutes. If you have a large liquidity event seek the advise of someone the specializes in this area. Both states have some fairly specific guidance.

The following is Indiana's policy:

Full-year residents

If you were a full-year resident of Indiana and your gross income (the total of all your income before deductions) was greater than your total exemptions, you must file an Indiana tax return.
Full-year residents must file Form IT-40, Indiana Full-Year Resident Individual Income Tax Return or Form IT-40EZ for Full-Year Indiana Resident Filers with No Dependents. If you filed a 2010 federal Form 1040EZ, were a full-year resident of Indiana, claim only the renter's deduction and/or unemployment compensation deduction, and have only Indiana state and county tax withholding credits and/or an earned income credit, then you should file the simplified Form IT-40EZ. If you are not eligible to file Form IT-40EZ, have any add-backs or other deductions or credits, you must file Form IT-40.
You are a full-year Indiana resident if you maintain your legal residence in Indiana from Jan. 1 — Dec. 31 of the tax year. You do not have to be physically present in Indiana the entire year to be considered a full-year resident. Residents, including military personnel, who leave Indiana for a temporary stay, are considered residents during their absence.
Retired persons spending the winter months in another state may still be full-year residents if:
  • They maintain their legal residence in Indiana and intend to return to Indiana during part of the taxable year,
  • They retain their Indiana driver's license,
  • They retain their Indiana voting rights, and/or
  • They claim a homestead deduction on their Indiana home for property tax purposes.
Indiana allows $1,000 for each exemption claimed on your federal return, plus an additional $1,500 for certain dependent children (see instructions on page 22 for more information). If you did not have to file a federal return, you should complete a “sample” federal return to see how many exemptions you are eligible to claim.
If your gross income is less than your total exemptions, you are not required to file. However, you may want to file a return to get a refund of any state and/or county tax withheld by your employer, or other refundable credits, such as an earned income credit.
Part-year residents and full-year nonresidents

If you were a part-year resident and received income while you lived in Indiana, you must file Indiana Form IT-40PNR, Part-Year Resident or Nonresident Individual Income Tax Return.
If you were a legal resident of another state (exception: see next paragraph) and had income from Indiana (except certain interest, dividends, or retirement income), you must file Form IT-40PNR.

**********************************************
The following is a portion of the applicable law for NC:

6B.3901. Definition of resident.

(a) Only one domicile.—Domicile means the place where an individual has a true, fixed permanent home and principal establishment, and to which place, whenever absent, the individual has the intention of returning. In many cases, a determination must be made as to when or whether a domicile has been abandoned. A long standing principle in tax administration, repeatedly upheld by the courts, is that an individual can have but one domicile; and, once established, it is not legally abandoned until a new one is established. A taxpayer may have several places of abode in a year, but at no time can an individual have more than one domicile. A mere intent or desire to make a change in domicile is not enough; voluntary and positive action must be taken.
(b) Factors.—Some of the tests or factors to be considered in determining the legal residence of an individual for income tax purposes are as follows:
(1) Place of birth of the taxpayer, the taxpayer's spouse, and the taxpayer's children.
(2) Permanent residence of the taxpayer's parents.
(3) Family connections and close friends.
(4) Address used for federal tax returns, military purposes, passports, driver's license, vehicle registrations, insurance policies, professional licenses or certificates, subscriptions for newspapers, magazines, and other publications, and monthly statements for credit cards, utilities, bank accounts, loans, insurance, or any other bill or item that requires a response.
(5) Civic ties, such as church membership, club membership, or lodge membership.
(6) Professional ties, such as licensure by a licensing agency or membership in a business association.
(7) Payment of state income taxes.
(8) Place of employment or, if self-employed, place where business is conducted.
(9) Location of healthcare providers, such as doctors, dentists, veterinarians, and pharmacists.
(10) Voter registration and ballots cast, whether in person or by absentee ballot.
(11) Occasional visits or spending one's leave “at home” if a member of the armed services.
(12) Ownership of a home, insuring a home as a primary residence, or deferring gain on the sale of a home as a primary residence.
(13) Location of pets.
(14) Attendance of the taxpayer or the taxpayer's children at State supported colleges or universities on a basis of residence—taking advantage of lower tuition fees.
(15) Location of activities for everyday “hometown” living, such as grocery shopping, haircuts, video rentals, dry cleaning, fueling vehicles, and automated banking transactions.
(16) Utility usage, including electricity, gas, telecommunications, and cable television.
(c) When change occurs.—The following events indicate a change in residency:
(1) Selling a house and buying a new one.
(2) Directing the U.S. Postal Service to forward mail to a new address.
(3) Notifying senders of statements, bills, subscriptions, and similar items of a new address.
(4) Transferring family medical records to a new healthcare provider.
(5) Registering a vehicle in a new jurisdiction.
(6) Transferring memberships for church, a health club, a lodge, or a similar activity.
(7) Applying for professional certifications in a new jurisdiction.
(d) Military service.—A legal resident of North Carolina serving in the United States Armed Forces is liable for North Carolina income tax and North Carolina income tax shall be withheld from that individual's military pay whether the individual is stationed in this State or in some other state or country. An individual who enters military service while a resident of North Carolina is presumed to be a resident of this State for income tax purposes. Residency in this State is not abandoned until residency is established elsewhere. To change residency, an individual in military service must not only be present in the new location with the intention of making it a new domicile, but must also factually establish that the individual has done so.
(17 NCAC 6B.3901 revised eff. 6-1-93; 7-1-99; 8-1-02.)
SunsetSail, that was an informative post that might be useful to others in the future. Would you mind sending me links to the sources so I can bookmark them for future reference, in case this comed up again? Thanks.
__________________
MichaelB is offline   Reply With Quote
Old 09-14-2011, 09:37 AM   #14
Recycles dryer sheets
 
Join Date: Jul 2010
Posts: 255
Quote:
Originally Posted by MichaelB View Post
SunsetSail, that was an informative post that might be useful to others in the future. Would you mind sending me links to the sources so I can bookmark them for future reference, in case this comed up again? Thanks.
Indiana

North Carolina

Links to statutes for all states

It is fairly cumbersome to dig through the law this way. I used a subscription based database that aggregates all the laws to research so it just took a few minutes to find the sections and then google links.
__________________
SunsetSail is offline   Reply With Quote
Old 09-14-2011, 05:56 PM   #15
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,501
Quote:
Originally Posted by Midpack View Post
I have to believe this has been addressed here, but I haven't found it using search here or Google. We're planning to rent in NC for a year or more, and keep our home in IN for most of not all that time. I assume I am stuck prop taxes on the home even though we won't be the house. But how will (investment) income taxes work between the two states, I sure don't want to pay both in full. And if also have work income in NC, I assume that won't be taxed in IN. Anyone know where to find a summary, I know millions of snowbirds have faced this...
While the rules vary from state to state, your residence is generally where home is and where you plan to return. The tax authorities will look at things such as where you spent your time, where your cars are registered, where you vote, where you claim homestead, etc in assessing your state of residence. Generally speaking you would pay state tax in the state where the work occurs for earned income, in the state where the property is for rental income and in your state of residence for other unearned income and there are mechanisms to avoid the same income being taxed twice.

It sounds like your time in NC is temporary and you intend to return to IN. If that is the case then you would likely continue to file a IN state return and your investment income would be included in your IN return, and you would file a non-resident NC return if you had earned income in NC.

The above is how it generally works, so it is important to do your research for the specific states that will apply to you.
__________________
pb4uski is offline   Reply With Quote
Old 09-14-2011, 06:48 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,984
Quote:
Originally Posted by pb4uski View Post
It sounds like your time in NC is temporary and you intend to return to IN. If that is the case then you would likely continue to file a IN state return and your investment income would be included in your IN return, and you would file a non-resident NC return if you had earned income in NC.

The above is how it generally works, so it is important to do your research for the specific states that will apply to you.
Actually the plan would be to move to NC after renting for a year to get to know the area better. IN would be cheaper than NC, so I'd rather forestall paying NC income taxes. Again, my biggest concern is having to pay taxes on the same investment income and capital gains in both states. Thanks again...
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 04:33 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.