Tax tips on tax homes

According to news reports, former President Trump has filed paperwork to change his tax home from New York State to Florida. And, not surprisingly, the reason for the change appears to be taxes. New York has one of the highest state and local income taxes of any state, while Trump’s chosen state of Florida has no income tax.

For an individual like Trump with residences in more than one state, the individual’s tax home — or domicile—determines how the individual’s income will be taxed. For example, an individual whose tax home is in New York is subject to state income taxes on all of their income, no matter the source. By contrast, if the individual’s tax home is in another state, only income derived from New York sources — wages earned in New York or rental income from a New York building — is within the reach of New York tax collectors. Moreover, if the individual’s tax home is in a low- or no-tax state, the remainder of the individual’s income will be taxed at a lower rate or the individual will escape state income tax entirely.

Not surprisingly, tax auditors can be skeptical when a change of domicile removes thousands of dollars of income from the tax rolls. Therefore, an individual with multiple residences should be prepared to prove that the change is on the up and up.

Intent is key. State laws vary, but as a general rule, an individual’s tax home is the state that they intend to be their permanent home. For individuals who cut all ties with one state and move to a new state, proving that intent is not a significant issue. But, for snowbirds and others who have residences in more than one state, proving intent may be more involved.

Declaration of domicile. Some states — Florida included — allow new residents to officially designate the state as their tax home by filing a declaration of domicile. In late 2019, for example, Trump and his wife each filed a declaration with the State of Florida to move their permanent residence from Trump Tower in New York City to their Mar-a-Lago estate in Palm Beach, Florida.

However, when it comes to designating a tax home, saying so doesn’t make it so.

183-day rule. Despite a declaration of domicile, many states — particularly high-tax states such as New York and New Jersey — will treat an individual as a statutory resident if they maintain a home in the state and spend at least half the year in the state. That is, an individual will be deemed to be a state resident if they spend more than 183 days in the state during the year.

KEY POINT: Many snowbirds who split their time between homes in northern states and winter homes in sunnier (and low- or no-tax) states assume the reverse is also true: If they spend more than 183 days in the winter home, that’s enough to establish the winter home as their official tax home. However, presence in a state will not automatically prove intent to establish that state as an official tax home.