Statutory Residency At Your Second Home

Posted on 8/12/2020

With everything that has been going on, many people have been spending more time in their second home or, they’re considering buying one. The state of the world right now has people feeling trapped so naturally, they want to get away. Whether they’re seeking the mountains, a lake, an ocean, a better climate, more space, or just a change of scenery, it’s easy to understand why someone would want to be in their second home. With the idea that this is (or is going to be) a vacation home, most people never think about state income tax or, if they do, they dismiss it quickly. But, during a year like this, they might spend way more time in their second home than they planned. They’ve gone there earlier in the season than normal or they’re staying longer, possibly staying indefinitely while they work from home. All of this extra time will make statutory residency a concern.

A statutory resident is someone who spends a significant amount of time in a state where they own a home but were not already considered residents. This is not the state of their main home (normally known as their domicile). For many states, the definition of significant time is indicated by a specific number of days that can be spent, referred to as the residency threshold or bright line. For others, the days are taken into consideration along with other factors. And lastly, for a select few, there is nothing to consider because the state does not impose an income tax.

As an example, let’s consider someone who lives in an apartment in Massachusetts but owns a house in the mountains of upstate New York. In a typical year, they spend the majority of their time in MA where they work and call home. Most weekends, they head to NY to hike, ski, or just escape the busyness of life around their apartment – let’s say it’s 100 days per year. This is no problem at all, New York has a residency threshold of 184 days. They’re well below the line and will not need to worry about New York’s state income tax. However, this year, their office closed, and they were able to work from home full time. When that happened, they packed up some extra things and went to their New York house for an extended stay. Now, if their total days in New York exceed 184, they will owe New York income tax. On top of that, being a statutory resident in New York does not cancel out their residency in Massachusetts so they can potentially get hit twice with state income tax bills.

With the risk of such a large extra expense, it is something that requires careful consideration and planning. Be sure to consult your accountant or financial planner when making (or planning to make) a large change to your living situation. To find more information about your second home’s residency laws, go to their taxation or revenue website and, search for the section on full-time and part-time residency. And, of course, always be sure to track your time in each state using TaxBird!

Question, comments, feedback? Email jared@ware2now.com.