Dual State Resident?

My sister-in-law and her husband are now in divorce proceedings. Until late 2006 they lived together in a rented house in upstate NY. He retired and filed for divorce and moved to another city in NY. She does not work and moved in with her sister in VA, where she has now lived for about a year.

Under terms of their settlement, he has been sending her money every month; she will soon start to receive a portion of his NY State pension. She solely owns a rental condominium in upstate NY that will either break even or show a small loss in 2007. Otherwise, she has no other income.

In 2006 she and her soon-to-be-former husband filed jointly; for 2007, she will likely file separate at least to report the rental income and expenses and, perhaps, the pension income.

She continues to claim she is a "legal resident" of NY, although she has lived in VA for well over 183 days in 2007. Other than occasional short visits to her son, other family and friends, she has not been in NY all year. She has no obvious reason to return to NY (the son lives near the rental property and is available, if needed), but also no obvious reason holding her in VA either (other than low-cost accommodations with her sister). NY does not tax NY State pension income, hence the benefit of a claim of NY residency.

What State is she a resident of and what State tax return will she need to file for 2007 - NY, VA? Both due to her living in VA with NY- based rental income?

Thanks for any assistance.

Reply to
R. Pile
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Every state likes to have you as a resident ; it's sort of a wash for the payer, since you get credit for taxes paid to the first state from the second state, and thus wind up paying a total that's the tax of the highest tax state, until you're free from the part-time resident status entirely.

I'd go with the 180 day rule as to where you're a full-time resident, and pay the part-time resident tax for the other state.

Reply to
Ron Hardin

For residency, consider 2 things.

  1. domicile
  2. number or days in the state

It is possible to be a resident of two states.

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Reply to
Benjamin Yazersky CPA

It is usually not "sort of a wash" when two states treat you as a resident. Intangible income is taxed by the state of residence. In this instance both states would tax the intangible income. Neither state will give you a credit for taxes paid to the other state on intangible income. You usually get a credit for taxes paid on income sourced in the other state. E.g., State A would provide a credit (not to exceed State A tax rates) for taxes paid to State B on compensation earned in State B.

Intangible income is such things as interest and dividends and capital gains on securities.

Reply to
Alan

My assumption is that you're a resident of one or the other, and a part-time resident of the other, whichever way it goes. In which case (in my experience) the home state gives you credit for the taxes you paid on the part-time state return.

Reply to
Ron Hardin

It depends on the laws of the states involved, and the facts and circumstances of the particular case. It is entirely possible for an individual to be a tax resident of two states at the same time, and as someone else here suggested, it often happens in that situation that neither state will allow credit for tax paid to the other on income from intangible assets such as stocks, bonds, CDs, etc. Such income generally has its source at the residence of the owner; therefore, in cases of dual residence, each state considers it to be source income. Many "other state tax credit" statutes allow credit for taxes paid to another state only on income with a source in that state. As a result, neither state will allow credit for tax paid to the other on that income.

Virginia allows credit for taxes paid to another state on income sourced outside Virginia (Va. Code Ann. §58.1-332(A)). New York has a similar provision (N.Y. Tax Law §620(a) ; NYCRR 20 §120.1). Therefore, if your SIL is a resident of both states, and has income from intangibles, neither state will give her credit for the tax paid to the other on that income.

New York law defines a resident to include every individual domiciled in the state, and every individual domiciled elsewhere who maintains a permanent place of abode and spends more than 183 days of the taxable year in the state (NYTL Sec. 605(b)). However, a NY domiciliary who, during an entire tax year, does not maintain any permanent place of abode in NY, does maintain a permanent place of abode somewhere else, and spends 30 days or less of the tax year in NY is a nonresident. NYCCR (Regulation) Sec. 105.20.

Virginia law defines a resident to include every individual domiciled in the state ("domiciliary resident"), and every individual domiciled elsewhere who maintains a place of abode in the state for more than

183 days of the taxable year ("actual resident") (Va. Code Ann. §58.1-302 ; Va. Admin. Code 23 §10-110-30(B)). Note that the language is a little different from New York's; Virginia does not use the term "permanent" with reference to a place of abode.

Although a person can be a resident of two states at the same time (for example, a NY domiciliary who meets the definition of an "actual resident' of Virginia), one can have only one domicile at a time. In order to change domicile, generally an individual must move away from the previous domicile, move to and reside in a new location, and intend to remain in the new location permanently or indefinitely. If all three conditions have not been met, the domicile remains in the previous location even if the individual has severed all ties to it. Whether your SIL has established a new domicile in Virginia depends on whether the arrangement with her sister is intended to be temporary, or permanent or indefinite. If it is a temporary arrangement, she is probably still domiciled in NY, especially if she has not taken other actions consistent with a change of domicile such as registering to vote in Virginia, obtaining a Virginia driver's license, licensing her vehicle(s) in Virginia, moving her bank accounts to Virginia, etc. Also, if the arrangement with her sister is temporary, she has not met the requirements of the NY regulation to be treated as a nonresident because she has no permanent place of abode outside NY.

Since she has lived with her sister for a year already, it seems likely that their arrangement is at least indefinite, if not permanent. Unless she has plans to move to a place of her own in the near future, it sounds indefinite. That would make it a "permanent place of abode" for purposes of the NY definition, and also suggest that she may have made an effective change of domicile from NY to VA.

It sounds as though she is at least an "actual resident" of Virginia for 2007, if not a domiciliary resident. In NY, even if her domicile remains there, she is a nonresident if her sister's home is a "permanent place of abode," because she has met all the other requirements to be treated as a nonresident.

Based on the information provided, I'd probably consider her a full- year resident of Virginia and a nonresident of NY for 2007. Of course she would be required to file a nonresident return with NY to report the rental income. Her pension income would be taxable only in Virginia, which, alas, does not exempt it. However, there may be other facts and circumstances not evident here that could change the result.

Katie in San Diego

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Reply to
Katie

My reply relates to an individual who is considered a resident of two states at the same time.

Reply to
Alan

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