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Residency question
Old 12-22-2011, 09:52 AM   #1
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Residency question

This may not be strictly money/financial questions on the surface, but my reasons for asking boil down to money and personal finance. So here goes:

Do any of the married couples on here have the spouses each legal residents of a different state? This would seem to be feasible to us for several years after retiring even though we plan to live together. It seems the two states we would live in both define residency around about 180 days of presence. I'm not sure of the benefits/drawbacks. But on the surface it seems like something to consider because one of the states does not tax government pensions, which my wife will have, and the other state has very low taxes. It would seem like we ought to be able to legally exploit this situation but I have not worked out the details.

Does anyone do anything like this?

How does it work for taxes, state and Federal? My thinking right now is that we'd file jointly for federal taxes and separately for each state. DW would pay next to nothing on her pension. I'd pay on my retirement income at a lower rate in the other state. When it comes time for her to make RMDs things could change a bit, but that would not be for many years after we retire.

Obviously this is a little complicated but it could save us thousands a year in taxes if I understand the rules correctly. I guess I'm just looking for comments regarding any personal experiences with doing this to determine whether to look into it further.

We own property in both states and could meet any presence tests. I don't think legally qualifying would be an issue. My question is whether it makes sense.
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Old 12-22-2011, 09:59 AM   #2
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we'd file jointly for federal taxes and separately for each state.
Some states require you to file the same way you do on your federal return.
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Old 12-22-2011, 10:04 AM   #3
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I know someone who did this for around 5 years when he got a job in a new state and chose to commute instead of relocate. This cannot be generalized, though - it depends on tax regulations in each state, their filing requirements, and how they define taxable income.
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Old 12-22-2011, 01:35 PM   #4
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i know when I worked in Louisiana (offshore federal waters actually) for 14 days and lived in Utah for the next 14 days (wash, rinse, repeat), Utah made me file with Louisiana and pay them what they were owed. I then had to file with Utah to pay the difference between the two State income tax rates for the privilege of living in the beehive state. If the state I was working in had a higher income tax rate than Utah, the privilege was extended to me free of charge.

Since I held apartments in both states, I should have just been on a "frequent, habitual vacation to utah" and just shut my mouth. one thing I can't understand is how the CEO of my current company (in Utah) got out of paying taxes by living and working in Dallas for part of the year. Of course, his company has a floor full of accountants and attorneys to deal with this issue for him, and I was a lonely schmuck on arguing with the state.

Good luck, and i hope you have an army of advocates.
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Old 12-22-2011, 02:42 PM   #5
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Thanks for the replies.

In our case we already have to file in both states because we have income in both states because of a business of renting out our second home. Basically each state only taxes the income earned within the state. I realize this could vary a lot and frankly have not looked into it in great detail.

But in effect I want to make each my wife and I legal residents of different states. If she spent 6 months plus 1 week in Hawaii and I spend 6 months + 1 week in Arizona then we'd essentially satisfy the residency conditions. He r pension is her own income so it should be exempt from Hawaii taxes. My retirement income would be taxable but at lower Arizona rates. It has the potential of saving us a few thousand in taxes each year plus reducing our health care costs by another few thousand.

I'm not sure that having to file separately for the feds is a show stopper either. I'm just beginning to look at this and am exploring all options, basically just trying to educate myself.

I'm surprised more people have not said they do something like this given all the retirees with residency in no income tax states.

Maybe I'm completely mistaken about the advantages this would offer.
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Old 12-22-2011, 04:07 PM   #6
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Thanks for the replies.

In our case we already have to file in both states because we have income in both states because of a business of renting out our second home. Basically each state only taxes the income earned within the state. I realize this could vary a lot and frankly have not looked into it in great detail.

But in effect I want to make each my wife and I legal residents of different states. If she spent 6 months plus 1 week in Hawaii and I spend 6 months + 1 week in Arizona then we'd essentially satisfy the residency conditions. He r pension is her own income so it should be exempt from Hawaii taxes. My retirement income would be taxable but at lower Arizona rates. It has the potential of saving us a few thousand in taxes each year plus reducing our health care costs by another few thousand.

I'm not sure that having to file separately for the feds is a show stopper either. I'm just beginning to look at this and am exploring all options, basically just trying to educate myself.
It may not be so easy. Residency is established not just by days present but also intent, which is determined by things like drivers license, vehicle registration, insurance, voters registration, and domicile of financial accounts. And marriage. Any of these that require joint registration, such as financial accounts and insurance, cannot have multiple addresses in multiple states. You will need to choose one domicile for your joint accounts and that state will presume both are residents.

Quote:
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I'm surprised more people have not said they do something like this given all the retirees with residency in no income tax states.
Many retirees spend the year between two states, but are residents in only one. Some working people commute to a different state to avoid moving, but they also spend most of the year in that other state. It appears to me that you are proposing to live together with your spouse for most of the entire year, yet be residents of different states solely for tax purposes. That might backfire and expose you both to resident claims to both states.
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Old 12-22-2011, 04:17 PM   #7
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I think what you want to do is probably possible but it needs to be properly structured. Further to one response, you would probably each want to have your drivers license, voting, mailing addresses, etc in the state that you intend to reside in and keep good records.

Another advantage that I have heard of is that if the states in question have homestead exemptions you might be able to each get a homestead exemption in some cases with proper structuring.

It sounds like in your case the economic benefits and peace of mind would exceed the cost of professional help to get the structure put in place so it may be worth pursuing.
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Old 12-22-2011, 04:42 PM   #8
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I think what you want to do is probably possible but it needs to be properly structured. Further to one response, you would probably each want to have your drivers license, voting, mailing addresses, etc in the state that you intend to reside in and keep good records.

Another advantage that I have heard of is that if the states in question have homestead exemptions you might be able to each get a homestead exemption in some cases with proper structuring.

It sounds like in your case the economic benefits and peace of mind would exceed the cost of professional help to get the structure put in place so it may be worth pursuing.
Again, thanks for the comments. It's just an idea at this stage and we would seek professional help. My estimate is that the savings would cover the costs even in the first year, but just barely. After that though it should persist with no added cost.

We've already thought about the driver's license and similar issues and know about the intent requirements too. But my wife's intent would be to remain a resident of Hawaii and my intent would be to remain a resident of Arizona.

And most of our accounts are in a trust so that I suspect it can be modified to split taxable proceeds equally. We would not play games with trying to optimize that for taxes because that would be a minefield.

My gut tells me that this can't be done. What nothing I have read would seem to prevent it.
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Old 12-22-2011, 06:39 PM   #9
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YOu can do if if you are very careful and the State isn't too nasty. You have to seperate everything from your previous State. If you own a home in your previous State, you may have to take your name off of it. And, you have to spend over half of your time out of the State you don't want to be a resident and if your changing States, you have to prove you spend more time in that State then your previous State.

NOw, with all that in mind, you need to have a qualified CPA in both States review the laws for you..... that costs money. In fact, even if you both retire and move, some States will still fight with you, especially if their State tax is higher than your moving from.

I fought this battle a few years ago and it drove me nuts. They will even use a joint checking account to argue you are still a resident. So, get expert advice, make sure you will pass your State's test and if your CPA says you are in for a fight, you will be. Let me add other States are easy, like Florida and Texas that don't have a State income tax........no one can give you an easy answer, you'll need to check everything out for yourself. Good Luck!!!!!!!
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Old 12-22-2011, 08:00 PM   #10
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It sounds very difficult so I hope the rewards are worth it. Once you know roughly what it takes I would measure those extra costs against potential savings. You may need one or 2 tax advisors, you may have to file separately for Federal which will also cost more etc.

Once you know how many $'s you may save, what price do you put on your time and hassle factor?
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Old 12-22-2011, 08:59 PM   #11
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You could get divorced and then have no trouble qualifying for two residences. Probably save on federal income taxes too with both filing single.
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Old 12-23-2011, 11:11 AM   #12
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Hey, I thought I knew the answers to those questions relative to my own state of Florida, but I was wrong. Again. Florida is pretty stringent when it comes to residency because of the homestead exemption, no state income tax, etc. So, I Googled "Florida Residency Requirements" and discovered how little I knew about what's required. Not only what but when it is required. I'm sure every state has this on it's website.
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