definiton of legal residency

[the_tucson_kid]

I currently live in Texas and hope to RE in about 8.5 years. Texas has no income tax but high property taxes and on the Guld coast at least very high insurance rates. I also own a rent house in Arkansas which has an income tax but low property taxes and low insurance rates.

I currently pay about $6000 per year in mortgage, $3000 per year in property taxes and $3000 per year in insurance cost (home owners, flood and wind) on my Texas property but only $350 in property taxes and $380 in insurance on my Arkansas property.

At retirement, I plan on selling my bay house and moving to Arkansas. Is it possible to remain a citizen in Texas and not pay income tax while living in Arkansas and paying minimal property cost? For tax puposes how is legal residency defined?

 

[10Splayer]

No.

If this was the case I think everyone would choose Alaska as there tax state. Not only no income tax. They send you a check.

Actually I only know of one way this works - if you join the military you can do this. But I'm pretty sure that is pretty anti-ER.

 

[BigMoneyJim]

I think in some cases if you run for public office you can reside where you don't live.

I doubt you could pull off what you'd like. I'm not sure which insurance rates you mean, but auto insurance rates can be lower if you live in a rural county. For example, most of the DFW metroplex is in Dallas, Tarrant and Denton Counties, but you could live in Rockwall County 30 minutes east of Dallas much more cheaply auto-insurance-wise and property-value-wise.

If you live very near the gulf (or near a river/resevoir) you may be paying much higher insurance due to flood insurance, so you could save by moving out of the flood plains.

My dad had a plan to live near a state line where one state had no income tax and the other had no sales tax. The states were Oregon and Washington, but I forget which was which taxwise. He would live in the no-income-tax state and drive across to shop in the no-sales-tax state. I laughed at him, but he was apparently serious. Hasn't done it yet, though.

Also, depending on your assets you might be able to withdraw in a fashion that minimizes your taxable income so you're in the no-tax bracket or only the low-tax bracket. One of the other boards has a thread about this. ORM or something like that is what they called it.

 

[Telly]

Living on the Gulf = Hurricane losses.

The only way that I can see you pulling it off, is to have your official place of residence in TX. That means your official mailing address, and drivers license registered there, that address used for IRS, etc. The place in AR could be your "vacation home". Expect the State of AR to check up on you, so the official TX residence needs to be a real place (apt. that you are renting, and listed on the lease as the renter, or house), and not a mailing redirect service!!!

Consider that if you thought of it, someone else has probably thought of it too and tried it before. So there may be a net designed to catch it. Measures and countermeasures.

 

[the_tucson_kid]

Thanks for the replies.

Telly, that was how I was planning it. Having voters reg. drivers license, banking in Texas. But no house or apartment. I was planning on using a mail drop with forwarding so all business would be done in Texas, either through the mail or over the internet. One possiblity if I had to have a home in Texas would be to buy an old RV and have it licensed in Texas but parked in Arkansas. How do people with RV's or second homes handle residency and taxes?

 

[haha]

Tucson says: "Having voters reg. drivers license, banking in Texas. But no house or apartment. I was planning on using a mail drop with forwarding so all business would be done in Texas, either through the mail or over the internet. "

Well Tucson, I think you should expect maybe 3 months before the sheriff stops by your place in Arkansas. Your neighbors will figure out your game, and they won't be pleased. Because they will reasonably feel that you should be doing your part to support the state that they are supporting, and where you live and consume state services. Even now, I would think that you might be expected to file an Arkansas tax return, since you are earning income from your rental in Arkansas.

Living below one's means is nice, but breaking laws can get expensive quickly.

Mikey

 

[bongo2]

"How do people with RV's or second homes handle residency and taxes?" I'm curious about this as well. Dory mentioned that he is a "resident" of Texas, but, boating all over the place, I wonder how that's defined.

 

[dory36]

I have read some good discussions on residency, but can't find a link to any at the moment. You might look at the forums at http://www.rvnetwork.com/cgi-bin/ultimatebb.cgi -- there is usually discussion on this issue every month or so.

However, the bottom line is that your INTENT is the governing rule in the absence of anything better. If you spend a few weeks here and a few weeks there, it's hard for any of those places to claim you. On the other hand, spend a lot of time in the same place and you'll give the local tax authorities reason to try to claim you. And once that process starts, the burden is probably on you to persuade the bureaucrats that you don't reside there!

We have friends who have two homes, one in tax-free Florida and one in Mississippi. They tell us they make sure to spend more than half their time in Florida, and make sure they can back up their claim.

Besides the military, there are many people who are residents of a state but spend little time there. That was certainly our case when working overseas, and is the case for RVers, cruising boaters, and lots and lots of people who work in jobs where they have to follow the projects.

Dory36

 

[Patrick Maston]

There's an interesting article at this link regarding "domicile" that you might want to read:

http://www.escapees.com/website/edocuments/texan.pdf



Patrick

 

[Mason]

There was a recent court case (within the last six months) involving a man who had two homes. He sold one that he claimed as his principal residence and avoided federal income tax on the sale.

The IRS challenged him saying he did not spend enough time, in the home he claimed, to qualify it as a "principal residence".

The upshot was that he was ruled to not have a principal residence at all, since he didn't live in either home long enough to qualify.

This is somewhat different than "legal residence" for state tax purposes however, it shows that one can become caught up in one's claims if they are not very careful.

This man not only lost his tax free sale but he will have to requalify on the remaining home should he want to sell it.

b.

 

[haha]

The upshot was that he was ruled to not have a principal residence at all, since he didn't live in either home long enough to qualify. ....
This man not only lost his tax free sale but he will have to requalify on the remaining home should he want to sell it.

This is truly a bad dream for this guy. Could you give a link or way to find this case? I would like to know more about the details.

Thanks, Mikey