Where Is Home When You Have More Than One?
The arrival of COVID-19 followed by the Delta variant likely contributed to a movement already underfoot for some Americans – sharing time between what had always been considered their primary residence and a vacation home. Now that workers did not necessarily need to report to work regularly at a physical location and could handle their day to day routines remotely, commuting became less of a problem. The choice between spending time at their “regular” home located near their office and spending time at a vacation property where they traveled to rest and relax became more fluid, some workers even deciding eventually to surrender their principal residence in favor of their vacation home. Some also decided to retire early to their preferred location. For others, though, the lure of multiple options has been attractive. They might have recognized, because it was and has been unclear when working remotely would end, if ever, they need to or simply want to continue in possession of two residences with roughly equal time in each.
As with every movement, decisions need to be made. One major decision for those who keep two residences is to decide which one is “home.” For legal purposes, the term is referred to as “domicile.”
Domicile has many consequences and can be determined in several ways. Questions include where do have your driver’s license? In what state or jurisdiction do you vote? Another question, not as significant in some cases but more so in others, is “where do you spend most of your time?” If you balance time between states or jurisdictions, will you need to pay taxes in both? In most cases, obviously, property taxes will follow the jurisdiction of the physical location of the property. However, some states, like Florida, have generous “homestead” tax benefits for state residents only which could be an incentive to consider oneself a resident of one such state.
There are other considerations. You might want to consider yourself to be a resident of one state for one purpose and of another for other purposes. Can you do that? If you have questions, you should seek assistance.
Is reciprocity a possibility? Some states have reciprocity where they recognize taxes paid in another state and use that information to offset taxes or even eliminate them. For instance, Pennsylvania and New Jersey have a PA/NJ Reciprocal Income Tax Agreement under which compensation paid to Pennsylvania residents employed in New Jersey is not subject to New Jersey Income Tax. Similarly, New Jersey residents are not subject to Pennsylvania income tax. Since a number of Pennsylvania residents own second properties at the New Jersey shore, Pennsylvania – New Jersey questions are not an academic exercise. The reciprocity agreement relates to compensation only which includes salaries, wages, tips, fees, commissions, bonuses, and other payments received for services rendered as an employee. For other sources of income, it may be necessary to file a non-resident tax return.
Domicile can have far reaching consequences. It can determine what laws affect your taxes, the operation of your business if self-employed, where your Will is to be probated and inheritance laws and regulations regarding your estate, what benefits, if any, you are entitled to and a host of other issues.
A recent article in the Wall Street Journal, “As Second Homes Get Far More Use, the Question Is: Where Do You Live?” October 14, 2021. The article notes:
“Generally, most states consider a domicile to be a primary residence and the place where the taxpayer spends the majority of their time…When a taxpayer spends equal time in multiple homes, it can be a gray area. When the domicile isn’t clear cut, ‘state tax auditors will look at other factors, like where is your business address?’,,,’Where do your credit-card bills go? Where are your doctors?” id.
I would add driver’s license and Voter’s registration.
The article includes several examples of couples interviewed and their experiences. Aside from the legal consequences of deciding where you live, there are tactical ones. For instance “where do you want to receive your mail?” “can you travel with pets?” “do you need two sets of clothing, one for each location?” “where is your car insurance going to be placed?”
For all these questions the fact remains that the flexibility for those who can afford it, can be enticing.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.