State Income tax question

[Stormy Kromer]

DW and I are considering a move in a couple of years to be closer to our two children and families. We're not moving into their back yard, but want to be within 100 miles of each and have a location in mind.

We're life long residents of MN and the move will put us in another state that does not have a state income tax. This isn't the primary reason for our move, but it will save us thousands a year.

My question is, will some of our income still be subject to MN income tax ? We have some rental real estate in MN that we'll be keeping, I'm assuming that we will have to file a MN return on that, that's only right.

A large portion of our retirement income will be my IRA distributions. All of this money was earned while living in MN, if we withdraw it as residents of another state would MN have a claim on it ?

I'm assuming that income from our Mutual Funds would not be subject to MN tax once we become residents of a new state. (MN taxes LTG as ordinary income, ouch).

I have a CPA do my taxes and I'm sure she will do it all correctly, I'm just doing a little back of the envelope planning at this point and I figured some on this forum have moved to another state and would have some experience. Thanks all.

 

[wrigley]

I have lived in Florida for the past 26 years (no state income tax). I have owned rental property in Virginia (state income tax) since 1989. I have never received anything from Virginia informing me that I owed them state income tax.



Mike

 

[Dtail]

Just on the IRA withdrawal aspect, we will withdraw our IRA's in FLA, but was earned in the high tax NE states.
The NE states will not tax the withdrawals or even follow it. I can't see how MN would tax it.

 

[pb4uski]

You will need to file a non-resident return for your MN properties income... but IRA withdrawals are income in the state that you reside when the withdrawals are made.

The way it works in VT is that you calculate your VT tax as if you were a resident, and then the tax is multiplied by VT income/total income.

What I am relating is how VT does it based on my experience with my Mom who has both of your situations, but it may work differently in MN.

 

[pb4uski]

Just on the IRA withdrawal aspect, we will withdraw our IRA's in FLA, but was earned in the high tax NE states.
The NE states will not tax the withdrawals or even follow it. I can't see how MN would tax it.

IIRC, some states sought to tax income that was deferred by residents and then later withdrawn while they were no long a state resident and they lost in court and I think there was federal legislation prohibiting them from doing it... just going from memory.

Besides, the way people move around it would be an accounting nightmare.

 

[MikeTN]

You may be liable for capital gains tax in MN when you sell.

 

[MarieIG]

I would like to keep my parents home at least for a few years after we retire and move out of State, but have concerns about NY's income tax policies.

 

[Bamaman]

Many think Tennessee doesn't have a state income tax. They have had a state income tax for income derived outside of the State--like mutual funds and income from out of state businesses. This tax is in the process of repeal over time.

And many of the really wealthy Tennessee citizens have homes in Florida and file their income taxes there.

Go ahead and move to a non-income tax state and you will not be taxed.

 

[euro]

I have lived in Florida for the past 26 years (no state income tax). I have owned rental property in Virginia (state income tax) since 1989. I have never received anything from Virginia informing me that I owed them state income tax.



Mike

I'm pretty sure you should file a return in VA. I don't know VA specific law, but I know I have K1 type investments in PA and CO and my accountant files returns for me in both of those states. Don't usually end up owing any taxes (or just minimal amounts), but still have to file. You may have simply been flying under the radar in VA all this time. Just because they haven't come after you, doesn't mean you shouldn't have filed?

 

[GenXguy]

Many think Tennessee doesn't have a state income tax. They have had a state income tax for income derived outside of the State--like mutual funds and income from out of state businesses. This tax is in the process of repeal over time.

Tennessee is a state I've considered looking into relocating to when I retire. I'm aware of the Tennessee limited tax that is being phased out. Illinois had a 67% tax increase years back with an expiration (not entirely, but to a 25% increase over the original). The problem is that after it reverted to the 25% increase, they brought back a permanent tax increase just shy of the previous 67% tax hike. And then they increased a bunch of other fees by large amounts and higher property taxes (second highest in the nation I believe). No wonder so many people are leaving the state.

 

[meierlde]

I'm pretty sure you should file a return in VA. I don't know VA specific law, but I know I have K1 type investments in PA and CO and my accountant files returns for me in both of those states. Don't usually end up owing any taxes (or just minimal amounts), but still have to file. You may have simply been flying under the radar in VA all this time. Just because they haven't come after you, doesn't mean you shouldn't have filed?

As I understand it the rental income being specifically in va requires a va tax return. Of course the question is how does the profit from this compare to the va minimums to file a return. When you sell the place you will likely get a 1099 for it mailed to va.

 

[rothlev]

income is taxable to the state in which it is received. the rental will always be taxable to VA. The retirement income , the year of the move would be prorated out according to where you lived when you received the checks.

 

[euro]

As I understand it the rental income being specifically in va requires a va tax return. Of course the question is how does the profit from this compare to the va minimums to file a return. When you sell the place you will likely get a 1099 for it mailed to va.

Right, but @Wrigley seemed to imply that since he never heard anything from VA for the last 26 years, he didn't need to file or pay taxes. When in fact, he should file every year on the rental related income/expenses in order to establish whether or not any taxes are owed after taking into account relevant minimum amount.
The bottom line is that it is that taxpayer's responsibility to file, not the Government's responsibility to ask. I suppose many of those 26 years are probably beyond the statute of limitations, but even if he never actually would have ended up owing any taxes in VA, he could still get busted for "failure to file". And you are right, this will probably all come to a head when a 1099 is submitted upon sale of the property.

 

[Senator]

I am a resident of FL and a former resident of MN and have MN rental properties. Only the income from the rentals in MN is taxed in MN.

When you make a trip to MN, all your travel, food and lodging is deductible, assuming you work at least 4 hours a day. Banking, cleaning, showing, collecting rents, etc. are all 'work'. That includes travel between the places.

A tax savvy landlord will be able to make the trip deductible, and save both Federal and MN income taxes.

You must file a Minnesota return if your Minnesota gross income meets the minimum filing requirement ($10,650 in 2018).
https://www.revenue.state.mn.us/nonresidents
https://www.revenue.state.mn.us/sites/default/files/2019-07/m1nr_18.pdf

Right, but @Wrigley seemed to imply that since he never heard anything from VA for the last 26 years, he didn't need to file or pay taxes. When in fact, he should file every year on the rental related income/expenses in order to establish whether or not any taxes are owed after taking into account relevant minimum amount.
The bottom line is that it is that taxpayer's responsibility to file, not the Government's responsibility to ask. I suppose many of those 26 years are probably beyond the statute of limitations, but even if he never actually would have ended up owing any taxes in VA, he could still get busted for "failure to file". And you are right, this will probably all come to a head when a 1099 is submitted upon sale of the property.

What if after depreciation there was a loss? You also get a standard deduction. Do not assume that anyone owes income taxes.

 

[wrigley]

I'm pretty sure you should file a return in VA. I don't know VA specific law, but I know I have K1 type investments in PA and CO and my accountant files returns for me in both of those states. Don't usually end up owing any taxes (or just minimal amounts), but still have to file. You may have simply been flying under the radar in VA all this time. Just because they haven't come after you, doesn't mean you shouldn't have filed?

File a state return based on what? I have never received anything from Virginia related to taxes.

Mike

 

[OldShooter]

... My question is, will some of our income still be subject to MN income tax ? ...

The short answer to your question is yes, you will have to pay MN tax on MN income. The longer answer is that if you aren't careful you could find yourself paying more than that.

Minnesota, specifically, is becoming more aggressive in shaking down ex-residents. It used to be that presence in the state for half a year or less was adequate to be considered a non-resident, but now they are going beyond that. They look at things like "Where does your dentist live?" "Where do you celebrate holidays?" Really! There was quite a good article in the Strib yesterday on this exact topic: Moving to escape taxes? Make sure it's a clean break - StarTribune.com

 

[HawkeyeNFO]

File a state return based on what? I have never received anything from Virginia related to taxes.

Mike

If you have income from a Virginia source, such as your rental property, then you have a responsibility to file.

 

[PatrickA5]

File a state return based on what? I have never received anything from Virginia related to taxes.

Mike

Assuming you include your rental on your Federal 1040, then you should have the information necessary to prepare your Virginia taxes. The state shouldn't be sending you anything.

 

[OldShooter]

If you have income from a Virginia source, such as your rental property, then you have a responsibility to file.

It may be, too, that there is no statute of limitations for non-filers. They could easily reach back to collect tax and penalties from day 1. IIRC the feds can do this for tax fraud.

 

[gauss]

Especially in that this appears to be business, not personal, income.

 

[pb4uski]

File a state return based on what? I have never received anything from Virginia related to taxes.

Mike

If you have income from a Virginia source, such as your rental property, then you have a responsibility to file.

Assuming you include your rental on your Federal 1040, then you should have the information necessary to prepare your Virginia taxes. The state shouldn't be sending you anything.

+3 Bad news Mike.... you have VA income and therefore are responsible to see if you need to file a VA return.... it might be that you don't need to file or perhaps need to file but don't owe any tax.... but my guess would be that you do need to file a VA return for the VA rental income and will likely owe some VA tax.

VA may do it differently, but many states have you calculate the tax based on all your income as if you were a full-time resident and then what you owe is that tax times VA income divided by total income.

 

[ncbill]

Many think Tennessee doesn't have a state income tax. They have had a state income tax for income derived outside of the State--like mutual funds and income from out of state businesses. This tax is in the process of repeal over time.

And many of the really wealthy Tennessee citizens have homes in Florida and file their income taxes there.

Go ahead and move to a non-income tax state and you will not be taxed.

TN's income tax is already tiny and zero soon enough. From wikipedia:

2% for tax years beginning January 1, 2019, and prior to January 1, 2020

1% for tax years beginning January 1, 2020, and prior to January 1, 2021

I'm seriously considering domiciling there even though NC income tax is only a flat 5.25%.

 

[gauss]

Curious if (edit: [-]OP[/-] wrigley) has been filing Federal Schedule E all these years or not.

He/She may have even larger problem down the line if none of the rent has ever been reported.

-gauss

p.s. \/ Thanks pb4uski

 

[pb4uski]

To be clear though, not the OP.... a subsequent poster.... the OP hasn't moved yet.

 

[marko]

Word of caution: Some income tax states won't let go of your tax revenue that easily!

Just saying you've moved out of state often isn't enough. Some states will require proof beyond just a new mailing address; you'll need to provide a new driver's license, voter/car registration, etc to show that you have permanently moved vs a convenience/temporary move such as snowbirding.

OTOH, seems that half the cars here in Mass have FL license plates; for some reason they all disappear around November or so.