Eric Donner ChFC®, CExpTM, CAP®, CLU®
Real Estate and Your Change of Residency Plans
The home is a sacred haven for most. It is also a primary factor under the Domicile Test when undergoing a residency audit by your home state. If you’re moving to a new state, it sounds simple. However, it’s not, especially if your plan is to maintain a residence in the your Home State and your New State.
Under the five primary factors auditors look at when determining your true state of domicile and your tax obligation is your home and many nuances related to your home. For most who seek a change of domicile, over many years they built their home, not only their house. They raised their family there, had many family celebrations and used it as the ultimate gathering place. Now, since the home is a key factor if you’re subjected to an audit, your auditors, your residence will be under the microscope.
Primary Factors for Residency
The first thing auditors will review is any real estate maintained and used by the taxpayer. In audit, the state will look at homes you own or lease. If only one home is owned, it’s a little easier.
If you have New York real estate holdings and Florida real estate, for example, auditors will look at several factors to determine which is your “home” under state tax laws. Let’s say you have a home in the Hamptons and a place in Florida. Auditors will be looking at intent — a very subjective measure. Where do you intend to live?
For example, have you attempted to sell your NY residence or moved your family heirlooms to the new location?
While you don’t have to sell your NY home, to avoid being taxed as a NY resident, you’ll need to prove you intend to make your FL home your permanent residence. The auditor’s guidebook, fortified for court rulings shows both that the evidence showing you’re no longer a NY state resident is clear and convincing. Further, it’s up to you to demonstrate intention.
Some of the other factors auditors will consider, include:
Size and Value If you have a one-bedroom condo in NY and a 3,000 square foot home in Florida, it can be an indication that your residence is in FL. However, auditors will also examine value. The condo in New York may be valued higher than the Florida home.
Nature of Use How properties are used is one of the biggest factors. Since high-income earners may have the ability to maintain multiple real estate properties, how the property is used will be questioned.
Other Aspects Other aspects will also be considered, such as whether you have domestic help in maintaining your property. For example, if you employ cleaning services, groundskeepers, or chauffeurs, auditors will compare the size of staff and types of employees.
As you can see, the nature of a residency audit can get invasive quickly. Auditors have broad discretion in what they examine. They may even do home visits and question everything you do and everywhere you go. Unlike a courtroom where you are presumed innocent until proven guilty, the burden is on you to prove your case.
And remember, the home test is just one of the five primary factors auditors will use to assess your residency.
Change of Residency Audits
With high-tax states, such as New York, seeing more high-income residents moving to low-tax states, such as Florida, auditors are becoming more aggressive than ever to make up budget deficits. Your chances of getting audited are near 100%.
The state wins in more than half of its residency audits. The average recovery amount in 2018 $273,000. In some cases, the penalties and interest can make this amount much higher.
You can’t afford to make a misstep.
Since COVID, many people that have spent their lives in the northeast are buying Florida real estate or heading to other hot markets like North Carolina or South Carolina.
Before you buy or sell real estate as part of moving to a new state, you should talk to the experts at Six Months and a Day. We can help you plan your real estate moves with careful planning to mitigate the odds of getting audited and help you create a strategic plan to defend yourself in case of an audit.
Since COVID, more than half a million people have left NY. Many people that have spent their lives in the northeast are buying Florida real estate or heading to other hot markets like North Carolina or South Carolina.
Our experienced team can create a customized plan for you, and help you navigate the complexities of the residency rules for real estate holdings for a smooth transition. Contact Six Months and a Day today to learn more.