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SALT TALK: Permanent Place of Abode:  Taking Ownership

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Dec 21, 2015 7:00:00 AM
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We have always been told it’s important to take ownership of your work, your actions, and sometimes even the actions of others. However, when it comes to determining whether you have a permanent place of abode (PPA), ownership just doesn’t matter.

Countless times, I have been asked by clients and potential clients whether they should buy, lease, rent, etc.  a home, condominium, or cooperative in their own name, their spouse’s name, a relative’s name, in a business entity, or any other permutation. While there may be other important reasons to evaluate this decision, determining whether one has a PPA just isn’t one of them.

At least as far back as 1993, the Courts have recognized that no ownership or other formal property right is necessary for a dwelling to be considered a PPA. The taxpayer was allowed to stay in the home of a friend. He did not pay for the use of the premises, but did contribute to all other household expenses. It was determined that the home was the taxpayer’s PPA as the right to use the premises along with his contributions to maintaining the household were more than enough.

Let’s jump forward to the current decade and temporarily watch the jurisprudence jump backward.  In a decision upheld by the Tax Appeals Tribunal and the Appellate Division of the New York State Supreme Court (but fortunately reversed by the New York Court of Appeals), the lower courts seemed to indicate that simply maintaining a property was enough to constitute a PPA. 

Were this case not reversed, auditors would have been able to argue that anyone having a property right in an abode and maintaining that abode could potentially be a resident of New York were they to spend the requisite 184 days here. This application would mean that every person supporting a child (in college or otherwise), a parent, a relative, or a friend could fall into the residency abyss.

Fortunately, the Court of Appeals made it clear there was no rational basis for this application and “there must be some basis to conclude that the dwelling was utilized as the taxpayer’s residence.” Nonetheless, there are many cases and situations that fall between the cracks of these two extremes. 

Don’t get caught by unpleasant surprises. If you are considering the purchase of a second home, contact us first so that we can examine all tax ramifications.

Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.

Topics: SALT TALK

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