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SALT TALK: Where You Rest Your Weary Bones May Have No Impact on Tax Residency

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Nov 16, 2015 7:00:00 AM
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As avid readers of my blog already know (see last week’s installment), most states have a two-pronged approach to pulling you in as a resident and consequently taxing you on worldwide income. The first way is domicile, the test that generally looks to your intentions. The second and the focus of this post is statutory residence.

If you have a permanent place of abode and are in the jurisdiction for more than 183 days, with limited exceptions, you will be held in the same regard as a domiciliary of the jurisdiction. You will be taxed as a resident. What many taxpayers fail to appreciate is that you don’t ever need to sleep, visit, drive by, look at or be within 500 miles of the so called living quarters that may constitute a permanent place of abode.

Typically, we see this problem with clients who have come to us to help with a residency audit.  They receive a letter from the authorities asking whether they own or rent a residence in the jurisdiction as well as their detailed whereabouts for the past three years. Unfortunately, many approach these audits with too much confidence. They are under the impression that even if they were in the jurisdiction for well in excess of 183 days and own or rent a residence in the jurisdiction, because they never stayed at or even went to the residence, they aren’t tax residents. 

Unfortunately, they would be wrong. Having access to a permanent place of abode (a term of art that will be the subject of at least one subsequent post) is enough. You never have to visit, let alone stay overnight. Many the taxpayers with vacation homes have fallen into this trap.

Fortunately, with some planning, a little used vacation home can be enjoyed without the disastrous consequences of being held a resident.

Considering the purchase of a second home? Concerned about dual residency issues? Contact me at wberkowitz@berdonllp.com.

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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