The Wall Street Journal has an excellent article on the tax risks of owning multiple residences or real estate in different states and it’s something that my wife and I have had to deal with over the past few years.
Here’s a key quote from the article, “States are getting more aggressive to avoid missing out on tax revenue, and they are employing more people and more resources, including artificial intelligence, to pull records more readily, Gillette says. They will pull cellphone records, credit-card data, verify doctors’ appointments, talk to doormen, and peruse highway-toll records to help confirm your whereabouts. “If you get audited, the records are going to save you or sink you,” she says.”
The article essentially cautions multi-state real estate owners that states are aggressively cracking down to ensure that the second home claimed as a second residence or real estate rental is indeed that because if it isn’t there’s the possibility that the state is missing out on a variety of taxes including state income tax.
The state income tax is one of the reasons my wife and I lived apart for almost two years when I got a job offer in a different state a few years ago. We looked at the tax implications of both of us working in a state with state income tax and realized we would have had to pay an extra $68,000 in income taxes.
All was not lost however because my wife and I traveled back and forth and kept meticulous records to show that she was never a tax resident of another state only a mere visitor. And that’s the key, meticulous records that demonstrate where your true primary residence.
We also have to worry that we don’t become tax residents in Europe where taxation rates can be as high as 50% when visiting our kid there, especially after we retire.
I’ve also heard stories of a few people moving to Nevada and setting up their primary residence there but still working in California. They go through great lengths including renting cars, using burner phones, and renting an apartment in California and living incognito.
Share The Wealth
Do you own multi-state properties and play the incognito game? Well keep it secret and tell me something else in the comments!