Do You Know Where You Live?

Many states give property tax breaks to those who are residents of the state, and deny those breaks to people who are not residents. Individuals and married couples filing joint tax returns can usually have only one principal residence. The tax breaks are big enough that some people cheat, claiming residency in more than one state. Others do it accidentally–they buy a house in Florida and claim it as their principal residence but forget to cancel the residency claim in the previous home state.

States have begun hunting for those claiming multiple principal residences and demanding back taxes from them. Some Florida counties have hired a private company to check those claiming a principal residency to see if they are also claiming one in another state, paying a bounty for each one caught. For those caught, the amounts can be big. In Michigan, the state can recover tax savings for the current year and three past years, plus 12% interest per year, and a penalty of up to $200. Florida is much more severe: it looks back up to 10 years, charges 15% interest per year, plus a penalty of 50% of the amount of back taxes and accrued interest.

The thing is, it is not always clear where one’s principal residence is. When claiming a residency exemption, they look to “indicia of residency” like voter registration, driver’s license, automobile registration, income tax filings, where the kids go to school, and other such things. However, if a state finds a person claiming a residency exemption in another state, that is a nearly an automatic disqualifier, even if all the indicia of residency support the person’s claim that he really does live in the state.

A key lesson here is that those who own a home in more than one state should check to see if they are claiming a residency exemption for more than one home. If so, they need to cancel one of them immediately. It would also be wise to assure that indicia of residency line up with the state in which residency is claimed.

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