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Back to School, Back to Residency Issues

01.08.18 | SALT Chat

We all knew it was going to happen. It’s a little less light when we get up in the morning; the kids will be home from camp soon (very soon, remember when Summer camp was really for the Summer, not just seven weeks or less); and our vacation rentals will be coming to an end. I inevitably start to think of humorous school-related anecdotes to ease the transition.

One of my favorites is straight out of the Rodney Dangerfield movie, Back to School. Mr. Dangerfield plays a well-seasoned, millionaire businessman who barely graduated high school but returns to college with his son. During his first economics class, Mr. Dangerfield asks the professor to explain exactly what a widget is. The professor annoyingly answers that it just doesn’t matter.  Mr. Dangerfield quickly snaps back, “Tell that to the bank.”

My other favorite anecdote comes from personal experience. During my first year of law school, more than two thirds of the way through our first semester of criminal law, our professor posed a question to one of my fellow students. She had no idea what the answer was, so the professor snapped back that she should try looking in her copy of the New York Penal Code. Without hesitation, she removed the Penal Code from her book bag and proceeded to unwrap it in front of the entire class.

Hopefully, readers, you have stayed with me this far because here comes the punch line. If you really enjoyed that vacation rental, maybe you are thinking of making this a permanent indulgence by buying (or renting long-term) a vacation property. If it is another taxing jurisdiction (whether state or a locality within your current state of residence) you need to be mindful of the residency rules.

Remember, jurisdictions that follow the statutory residency model (New York, New Jersey, Connecticut, and many others) generally don’t care how many days you spent at the vacation home. They only care about whether it was available to you. So, for example, a Connecticut resident who works in New York and buys a New York vacation home is very likely to fall into the statutory residency trap. Even if this individual spent only two weeks of the year at the vacation property, more than likely he/she was present in New York (work and vacation days) for well over 183 days. In my most recent 2MinutesOn video Avoiding Residency Audits, I discuss this problem and emphasize how the taxing authorities may not care if you spent a single moment at the vacation house.

We at Berdon are not trying to ruin your vacation plans, but we can help you strategize the best way to enjoy your dream house without falling into the residency trap.

If I have raised any concerns about your residency status, or if you have questions, contact me at WBerkowitz@berdonllp.com or your Berdon advisor.

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