State Residency For Tax Purposes: The 183-Day Limit

Home is where the heart is, and home is what decides your state residency for tax purposes. This can be an expensive problem for anyone who owns a home in more than one state. New York, for example, is like so many other states since it requires residents to pay income taxes, even if they don’t live there year-round. Any New Yorkers that leave the state for part of the year — and want to avoid the Empire State’s high income taxes — will have to prove exactly how long they live in another state.

Taxes and Residency

When it comes to residency and taxes, a state will require you to pay income taxes if you’re a resident and your income is earned within the same state, or if you earn income within the state but you’re not a resident. However, taxpayers are running into problems because each state has its own policy on who is considered a resident. Some states — New York being one — have taxpayers that spend a good amount of the year residing in a second state. Oftentimes, one of those states charges more state income tax than the other.

For instance, about 55,000 people flee from New York and head to Florida every year. Not only are they heading toward warmer weather, but Florida boasts no income tax. New York, however, is putting its foot down. If residents don’t want to pay New York taxes, they will have to prove that they’re spending more than half of the year outside the state.

Proving Nonresidency

If you’re close to the 183-day limit, you’ll need to hold on to your bills, phone records, and receipts to prove the exact amount of days you spent in and out of the state. This may sound tough, but state income tax investigators are tougher. Each year, New York State auditors hunt down and collect over $200 million in residency audits.

When counting the number of days spent in the state, any amount of time in a single day counts as one day spent in New York. This makes border-state relocations the toughest. An individual that moved to a new home in New Jersey from New York, but still works in New York City and keeps an apartment there, must watch the 183-day limit closely, because the state taxation department is watching too.

The real estate market is hit or miss sometimes, so it’s understandable for taxpayers to run into trouble when trying to sell their home. Often, a person will rent their property for income or while waiting for the sale. This ties them to their home state, oftentimes ending in audits over state residency.

No state will complain if you file as a resident. However, if you have a domicile in a state like New York and file as a nonresident, the bells and whistles will sound, raising questions. This is another reason to keep records of your transactions.

Tax law is confusing, including state residency for tax purposes. If you’re living in New York part-time and want to avoid New York taxes, it’s easier to move out of the state than to try to avoid paying taxes. When you consider purchasing another home in a different state, pay close attention to your state tax laws, and watch out for other states that follow in New York’s footsteps.

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