7 Tax Essentials

7 Tax Essentials for Snowbirds

Snowbirds frequently head to places like Florida, Arizona, or California in the winter months, and come back during the summer months. Before you pack up and fly away, here are 7 tax essentials  to help you figure out the tax side of being a snowbird.

  1. Decide on your “tax residence.” State tax returns will ask if you are a resident or nonresident of that state. If you are retired and have two homes, you will have to choose one of them to be your resident state. Some states don’t have an income tax, like the popular snowbird location of Florida. However, those states make their money in different ways. For example, with Florida, you will not pay income tax, but your property taxes are going to be far more expensive than your midwestern home state. You should ask a professional advisor to help you determine which state you should make your main residence. You typically need to spend a certain amount of days in the state that you are considering to be your home residence.
  2. Change your address on file with the IRS. Use Form 8822. You can always update your address when you file your return, but what if you move in the middle of the year? You should use Form 8822 or call the IRS. Unfortunately, you can’t file an address change online. You can change your address with the post office online, which *may* update the IRS’ records. However, this doesn’t always work and it can take the IRS four to six weeks to update your address.
  3. Keep really good records. Double check your tax returns or consider involving a professional. If you move from a high-income tax state to a low-income tax (or no-income tax state), you may end up being audited. States that lose revenue are aggressively going after taxpayers for this if the dollars are high enough. Keep a record of where you spend each day of the year in order to help you establish residence. A rule of thumb is if you spend more than 183 days in one state, you’re a resident. Also, change your driver’s license, register to vote, and put down roots.
  4. Don’t take no for an answer. If you receive a large property tax increase because you have a second home that isn’t homesteaded, consider appealing. First, review your tax assessment to see if it is correct. If the value is suddenly higher and you don’t know why, call the assessor and ask for details. Are they assuming you upgraded something and you didn’t? Is the square footage correct? Then research the assessed value of similar homes in your area. Finally, research how to file a property tax appeal in your location by either checking the assessment letter for instructions, or contacting your assessor.
  5. Tread carefully if you are going to sell your second home. Selling a second home doesn’t qualify for the primary homeowner exclusion unless you have occupied the home for the greater part of a year, for at least 2 of the last 5 years.
  6. Renting out your house isn’t a slam dunk. If you think you will rent out your second residence, you might want to think again. Remember, renting your home is a business, and it will make you a landlord. Renting out your home may seem like an easy way to cover the mortgage costs of a second residence, but there are many things to consider, including taxes.
  7. Update those estate plans. Some states have an estate tax (where the estate pays the tax) or an inheritance tax (where the person who inherits pays the tax), and others don’t. Your resident state determines which state your estate pays inheritance and estate taxes to, as well as where your will is probated and where your estate will be administered. It may be a lot easier for someone who lives near you to handle the estate administration than a child who lives several states away.

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Stephens Wealth Management Group does not provide legal or tax advice. The information herin is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. This content is being provided for information purposes only. Stephens Wealth Management Group is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors. Stephens Wealth Management Group is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. 

Stephens Wealth Management Group cannot guarantee that the information herin is accurate, complete, or timely. Stephens Wealth Management Group makes not warranties with regard to such information or results obtained by its use and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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