Rental Concern

[Dave C]

We purchased a Florida house in 2/16. We intend to first move in, in
9/16. We then intend to make that FL house our State Tax domicle
residence (v current CT).

Before our purchase offer, we were already living in a leased condo.
Thus as part of our purchase offer, we included a clause that the
sellers could remain in "their" house, until we return in September.
That extended stay offer did not include the seller paying us any
rent. They merely agreed to pay their electricity, cable etc usage and
maintain the house/ lawns. As compensation for that "free" rent stay,
the sellers then agreed to leave a lot of their existing house/yard
furnishings (no added cost to us).

Should we have any IRS tax concerns, in re to that transaction?

Thanks,

PS One of my wife/I main goals is to never again owe the usurious CT
taxes: income and then estate; as new FL residents.

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[Stuart O. Bronstein]

Dave C <da...@gmail.com> wrote

> We purchased a Florida house in 2/16. We intend to first move
> in, in 9/16. We then intend to make that FL house our State Tax
> domicle residence (v current CT).
>
> Before our purchase offer, we were already living in a leased
> condo. Thus as part of our purchase offer, we included a
> clause that the sellers could remain in "their" house, until we
> return in September. That extended stay offer did not include
> the seller paying us any rent. They merely agreed to pay their
> electricity, cable etc usage and maintain the house/ lawns. As
> compensation for that "free" rent stay, the sellers then agreed
> to leave a lot of their existing house/yard furnishings (no
> added cost to us).
>
> Should we have any IRS tax concerns, in re to that transaction?

>From a highly technical standpoint, the fact that you are not getting
rent should be accounted for in some way. If put into question the
IRS might consider the purchase price to be understated (since you
should get rent but are not, so are "paying" more than the actual
price).

They might allocate that to imputed interest or cancellation of debt
income, which would be considered ordinary income rather than capital
gain. And it might not be included within the $500,000 exemption
from tax for the sale of a home you and your spouse have owned and
lived in for more than two years.

--
Stu
http://DownToEarthLawyer.com
https://www.etsy.com/shop/studiobethdesigns

[VinnyB]

On Fri, 22 Jul 2016 13:42:16 EDT, Dave C <da...@gmail.com> wrote in
<j9j4pbpm8eg5ssgai...@4ax.com>

>We purchased a Florida house in 2/16. We intend to first move in, in
>9/16. We then intend to make that FL house our State Tax domicle
>residence (v current CT).
>
>Before our purchase offer, we were already living in a leased condo.
>Thus as part of our purchase offer, we included a clause that the
>sellers could remain in "their" house, until we return in September.
>That extended stay offer did not include the seller paying us any
>rent. They merely agreed to pay their electricity, cable etc usage and
>maintain the house/ lawns. As compensation for that "free" rent stay,
>the sellers then agreed to leave a lot of their existing house/yard
>furnishings (no added cost to us).
>
>Should we have any IRS tax concerns, in re to that transaction?

IMO, no.

>
>Thanks,
>
>PS One of my wife/I main goals is to never again owe the usurious CT
>taxes: income and then estate; as new FL residents.

As soon as you move into the house, change your voter registration,
automobile registration and driver's license to FL.

[MTW]

On Friday, July 22, 2016 at 11:11:02 AM UTC-7, Dave C wrote:

> As compensation for that "free" rent stay,
> the sellers then agreed to leave a lot of their existing house/yard
> furnishings (no added cost to us).

Strictly speaking, I suppose you should determine a value for the personal property (furnishings) in question and report that as rental income.

MTW

[Taxed and Spent]

On 7/22/2016 1:00 PM, VinnyB wrote:
> On Fri, 22 Jul 2016 13:42:16 EDT, Dave C <da...@gmail.com> wrote in
> <j9j4pbpm8eg5ssgai...@4ax.com>
>
>> We purchased a Florida house in 2/16. We intend to first move in, in
>> 9/16. We then intend to make that FL house our State Tax domicle
>> residence (v current CT).
>>
>> Before our purchase offer, we were already living in a leased condo.
>> Thus as part of our purchase offer, we included a clause that the
>> sellers could remain in "their" house, until we return in September.
>> That extended stay offer did not include the seller paying us any
>> rent. They merely agreed to pay their electricity, cable etc usage and
>> maintain the house/ lawns. As compensation for that "free" rent stay,
>> the sellers then agreed to leave a lot of their existing house/yard
>> furnishings (no added cost to us).
>>
>> Should we have any IRS tax concerns, in re to that transaction?
>
> IMO, no.
>
>>
>> Thanks,
>>
>> PS One of my wife/I main goals is to never again owe the usurious CT
>> taxes: income and then estate; as new FL residents.
>
> As soon as you move into the house, change your voter registration,
> automobile registration and driver's license to FL.
>

and your bank accounts, broker accounts, doctor, dentist, etc.

If you have the choice (family, etc.) I wouldn't set foot in CT for a
couple years.

[Dave C]

Stuart,

I am SO glad that you responded to my post, along with the other MOST
helpful replies!! I have often relied upon, to several of your prior
tax answers!

As is often my "case", I inadvetently forgot to initially post a
significant detail (I am a retied engineer; not a CPA!). While we
intend to establish Florida as our state tax domicile, we will NOT be
sellling our current CT residence! It is our intent to return to CT,
during the summer months - when the Fl heat and humidity dominate.

Thus there is no $500k sales exemption " in play", with our noted,
recent FL RE transaction. We will retain/ live in our current CT
house, during those 3->4 summer months.

Thx, to all responders !!

[Arthur Rubin]

On Saturday, July 23, 2016 at 10:13:12 PM UTC-7, Dave C wrote:

> As is often my "case", I inadvetently forgot to initially post a
> significant detail (I am a retied engineer; not a CPA!). While we
> intend to establish Florida as our state tax domicile, we will NOT be
> sellling our current CT residence! It is our intent to return to CT,
> during the summer months - when the Fl heat and humidity dominate.
>
> Thus there is no $500k sales exemption " in play", with our noted,
> recent FL RE transaction. We will retain/ live in our current CT
> house, during those 3->4 summer months.

I don't know how aggressive CT is in claiming resident status for taxpayers. If you were moving from CA, with that information, you would likely need to go to appeals, if not to court, to establish your nonresidence.

Conn. Agencies Regs. § 12-701(a)(1)-1(d)(8) specifies the following as factors:

(A) location of domicile for prior years;

(B) where the individual votes or is registered to vote (casting an illegal vote does not establish domicile for income tax purposes);

(C) status as a student;

(D) location of employment;

(E) classification of employment as temporary or permanent;

(F) location of newly acquired living quarters, whether owned or rented;

(G) present status of former living quarters, i.e., whether it was sold, offered for sale, rented or available for rent to another;

(H) whether a Connecticut veteran’s exemption for real or personal property tax has been claimed;

(I) ownership of other real property;

(J) jurisdiction in which a valid driver’s license was issued and type of license;

(K) jurisdiction from which any professional licenses were issued;

(L) location of the individual’s union membership;

(M) jurisdiction from which any motor vehicle registration was issued and the actual physical location of the vehicles;

(N) whether resident or nonresident fishing or hunting licenses were purchased;

(O) whether an income tax return has been filed, as a resident or nonresident, with Connecticut or another jurisdiction;

(P) whether the individual has fulfilled the tax obligations required of a resident;

(Q) location of any bank accounts, especially the location of the most active checking account;

(R) location of other transactions with financial institutions, including rental of a safe deposit box;

(S) location of the place of worship at which the individual is a member;

(T) location of business relationships and the place where business is transacted;

(U) location of social, fraternal or athletic organizations or clubs, or a lodge or country club, in which the individual is a member;

(V) address where mail is received;

(W) percentage of time (excluding hours of employment) that the individual is physically present in Connecticut and the percentage of time (excluding hours of employment) that the individual is physically present in each jurisdiction other than Connecticut;

(X) location of jurisdiction from which unemployment compensation benefits are received;

(Y) location of schools at which the individual or the individual’s immediate family attend classes, and whether resident or nonresident tuition was charged;

(Z) statements made to any insurance company concerning the individual’s residence, on which the insurance is based;

(AA) location of most professional contacts of the individual and his or her immediate family (e.g., physicians, attorneys); and

(BB) location where pets are licensed.

--
I don't know why (Q) is important; technically, MY bank account is still based in AZ, even though I moved from there in 1990, but I didn't own any property there, and I had already owned the house I moved back to in CA.

Elsewhere in the regulations it says that you are a nonresident if you were to be present in CT no more than 30 days in the tax year. You might want to try that _the first_ year after you move, to reduce problems.

--
Arthur L. Rubin, AFSP, CRTP, Brea, CA

[ira smilovitz]

If you die while owning assets located in CT, you will be subject to CT estate tax. It just may be a smaller exposure.

You also need to look carefully at CT's definition of resident and how aggressively CT has pursued residency issues. Based on the text in the CT-1040 instructions, you will need to establish FL as your domicile to escape CT resident income tax. Some states (NY is one) aggressive claim that as long as you retain ownership of your prior domiciliary residence in the state, you haven't changed your domicile. You should consult with competent counsel with CT experience to determine whether this may be an issue.

Ira Smilovitz, EA

[Taxed and Spent]

Your plan to return to CT will give the old state a leg up in claiming
you are still a resident. I would advise you to rent the CT house for a
couple years and not set foot in CT for those years, so when CT says you
owe them resident income tax, you will have the best reply possible.
Then, after a couple years, you can adjust your CT situation to visit in
the summer.

[Taxed and Spent]

But wouldn't that imputed interest or cancellation of debt income apply
to the FLORIDA seller, which would not concern OP in the slightest?

[Stuart O. Bronstein]

Taxed and Spent <nospam...@nonospam.com> wrote in
news:nn1ldl$obp$2...@dont-email.me:

>>>From a highly technical standpoint, the fact that you are not
>>>getting
>> rent should be accounted for in some way. If put into question
>> the IRS might consider the purchase price to be understated
>> (since you should get rent but are not, so are "paying" more
>> than the actual price).
>>
>> They might allocate that to imputed interest or cancellation of
>> debt income, which would be considered ordinary income rather
>> than capital gain. And it might not be included within the
>> $500,000 exemption from tax for the sale of a home you and your
>> spouse have owned and lived in for more than two years.
>
> But wouldn't that imputed interest or cancellation of debt
> income apply to the FLORIDA seller, which would not concern OP
> in the slightest?

The buyer would be getting imputed rent or interest since he
apparently paid less than he needed to, and paid it on the back end
by foregoing rent or interest from the sellers. So some of that
price reduction might be considered rent or interest. And that could
mean he might have some taxable income that couldn't just get added
on to the basis.

--
Stu
http://DownToEarthLawyer.com
https://www.etsy.com/shop/studiobethdesigns

[Dave C]

First, thanks to all of the responders - most valuable info/ insight!!

For sure maintaining a CT presence, at our "prior" CT house is a
challenge, one that we are well aware. I have already consulted with a
FL CPA, for further guidance in establishing FL as our tax domicile.
That CPA will prepare our TY 2016 tax/ future returns. That CPA was
recommended to us, as a pro whom regularly assists CT individuals
seeking to establish FL tax residency.

We have spent 1/1 to 4/1/16 in FL, at a leased condo. We will reside
in FL from 9/1 to year end, at the house we bought in 2/16.

Other activities, where we have/ will established Florida as our
residency:
- We registered/ voted in the FL March(?) primaries,
- We already have all of our new FL house utiilities billed to our
names
- Our bank and brokerage house
- All of our investments/ pensions now have our FL address
- Our registered church
- Our driver licenses and auto registrations
- All of our insurance policies (home, car, boat and umbrella)
- We will declare for a FL Homestead exemption, when 1st available to
us
- We will file all future tax returns from FL
- We will get a local library card and join local organizations

We will be in CT for ~5 "summer" months, albeit returning to our long
owned CT house.( Then, FL weather is too oppressive to reside there.)

As an aside, I may have forgot all of the " ways" that we have
completed, to establish FL as our home address. Are there other
recommendations?

[Taxed and Spent]

On 7/24/2016 9:41 AM, Stuart O. Bronstein wrote:
> Taxed and Spent <nospam...@nonospam.com> wrote in
> news:nn1ldl$obp$2...@dont-email.me:
>
>>> >From a highly technical standpoint, the fact that you are not
>>>> getting
>>> rent should be accounted for in some way. If put into question
>>> the IRS might consider the purchase price to be understated
>>> (since you should get rent but are not, so are "paying" more
>>> than the actual price).
>>>
>>> They might allocate that to imputed interest or cancellation of
>>> debt income, which would be considered ordinary income rather
>>> than capital gain. And it might not be included within the
>>> $500,000 exemption from tax for the sale of a home you and your
>>> spouse have owned and lived in for more than two years.
>>
>> But wouldn't that imputed interest or cancellation of debt
>> income apply to the FLORIDA seller, which would not concern OP
>> in the slightest?
>
> The buyer would be getting imputed rent or interest since he
> apparently paid less than he needed to, and paid it on the back end
> by foregoing rent or interest from the sellers. So some of that
> price reduction might be considered rent or interest. And that could
> mean he might have some taxable income that couldn't just get added
> on to the basis.
>

But as to the effect on the $500,000 exemption, that would only pertain
the the Florida home seller, not the CT home seller (although OP stated
he was not selling the CT home).

[Taxed and Spent]

your bigger concern is not establishing FL residency, but establishing
CT NON residency. Your 5 months in CT in your long time family home
will doom you in the eyes of CT.

[Bob Sandler]

You can only have one domicile, but it is possible to be
considered a resident of more than one state at the same
time for income tax purposes, because each state defines
residency differently. I don't know how CT defines a
resident for income tax purposes (which may be different
from the definition for other purposes). But as others have
indicated, if you spend enough time in CT and own a
residence there, it is possible that you would meet the
definition of a resident, even if you are also a FL resident
and FL is your domicile.

Bob Sandler

[Alan]

You can find the CT tax regulation on this subject at:
http://www.ct.gov/drs/cwp/view.asp?A=1512&Q=269334

If you change your domicile to FL (and it sounds as though you are
changing your domicile) then Regs. § 12-701(a)(1)-1(a)(2) would apply:

(2) any individual (other than an individual in the armed forces of the
United States) who is not domiciled in Connecticut but who maintains a
permanent place of abode in Connecticut, and spends in the aggregate
more than 183 days of the taxable year in Connecticut.

Regs. § 12-701(a)(1)-1(c) explains how you count days.

Lastly, all of Regs. § 12-701(a)(1)-1(d) explains how Ct determines your
domicile. Here are the items they consider:

(BB) location where pets are licensed. Any one of the items listed
shall not, by itself, determine domicile. Charitable contributions shall
not be considered in determining whether an individual is domiciled in
Connecticut.

[Taxed and Spent]

I would suggest taking the more caution approach, and meet the
requirements of this portion of the regulations you cited, at least for
the first couple of years to make the break with CT, since CT may argue
about domicile:


(b) Certain individuals not deemed residents although domiciled in
Connecticut. Any individual domiciled in Connecticut is a resident for
income tax purposes for a specific taxable year, unless for that year he
or she satisfies all three of the following requirements:

(1) the individual maintains no permanent place of abode inside
Connecticut during such year;

(2) the individual maintains a permanent place of abode outside
Connecticut during such entire year; and

(3) the individual spends in the aggregate not more than 30 days of the
taxable year in Connecticut.

As long as an individual who is domiciled in Connecticut continues to
meet the above requirements, such individual shall be considered a
nonresident of Connecticut for income tax purposes. However, if for any
taxable year those conditions are not met, an individual shall be
subject to Connecticut income tax as a resident for that year. An
individual who is a Connecticut domiciliary bears the burden of
demonstrating that the conditions set forth above have been met when
claiming to be a nonresident during the taxable year.

[Alan]

Two areas that are easy to forget about when changing domicile and
keeping a permanent abode in the old state are:

Homeowner exemptions: Many states offer property tax exemptions of one
kind or another that lower one's tax bill. Typically, these exemptions
are only available for your main home (principal residence) or only
available for residents or domiciliaries. Failure to inform the old
state that you no longer qualify for a property tax exemption can do you
in on the domicile test.

Homeowner Insurance: It is easy to forget to inform the insurance
company carrying your homeowner insurance, that the abode in the old
state is no longer your primary residence.

[VinnyB]

On Sun, 24 Jul 2016 16:22:59 EDT, Bob Sandler <bob_u...@yahoo.com>
wrote in <ng8apb9o1kj3nri37...@4ax.com>

>You can only have one domicile, but it is possible to be
>considered a resident of more than one state at the same
>time for income tax purposes, because each state defines
>residency differently. I don't know how CT defines a
>resident for income tax purposes (which may be different
>from the definition for other purposes). But as others have
>indicated, if you spend enough time in CT and own a
>residence there, it is possible that you would meet the
>definition of a resident, even if you are also a FL resident
>and FL is your domicile.

Yep, CT is one of those states. A good indication that the OP should
have escaped from there a long time ago.

[jmfbahciv]

VinnyB wrote:
> On Sun, 24 Jul 2016 16:22:59 EDT, Bob Sandler <bob_u...@yahoo.com>
> wrote in <ng8apb9o1kj3nri37...@4ax.com>
>
>>You can only have one domicile, but it is possible to be
>>considered a resident of more than one state at the same
>>time for income tax purposes, because each state defines
>>residency differently. I don't know how CT defines a
>>resident for income tax purposes (which may be different
>>from the definition for other purposes). But as others have
>>indicated, if you spend enough time in CT and own a
>>residence there, it is possible that you would meet the
>>definition of a resident, even if you are also a FL resident
>>and FL is your domicile.
>
> Yep, CT is one of those states. A good indication that the OP should
> have escaped from there a long time ago.
>

Massachusetts has similar laws so people can't avoid estate and
income taxes. If I had died within 3 years after I moved
out of Mass., my estate would have been subject to their estate
taxes. CT may have similar tax laws so that snowbirds still
have to pay taxes.

/BAH

[VinnyB]

On Mon, 25 Jul 2016 15:16:37 EDT, Alan <temp...@vacationmail.com>
wrote in <nn5oic$852$1...@dont-email.me>

>Two areas that are easy to forget about when changing domicile and
>keeping a permanent abode in the old state are:
>
>Homeowner exemptions: Many states offer property tax exemptions of one
>kind or another that lower one's tax bill. Typically, these exemptions
>are only available for your main home (principal residence) or only
>available for residents or domiciliaries. Failure to inform the old
>state that you no longer qualify for a property tax exemption can do you
>in on the domicile test.
>
>Homeowner Insurance: It is easy to forget to inform the insurance
>company carrying your homeowner insurance, that the abode in the old
>state is no longer your primary residence.

Good points.