How to Handle Taxes as a Part-Year Resident
If you’re fortunate enough to own properties in multiple states, you might be among a group of taxpayers known as part-year residents. Most commonly, these individuals will live in the northern part of the country during the summers, then spend their winters in the south to maximize their opportunity to enjoy the sunshine and warm weather.
While this may be an ideal lifestyle choice for some, handling your taxes can become complicated when you reside in more than one state throughout the tax year. Here are a few tips for determining your residency type and filing your taxes accordingly.
Determine your residency type and required tax forms
There are three major residency types and you’ll need to determine which applies to you in order to know how to file your tax return:
- Resident – Your residency is the location of where you live. You are a resident of a state if your intended main home resides in that state. For example, if you own a home in New York but stay in a vacation rental property in Connecticut for three months during the winter, you would only need to file taxes as a resident of New York State.
- Part-year resident – You become a part-year resident when you own property in different states, and you live in each one for part of the year. If you own homes in New York and Connecticut, and every year you split your time between the two states, you need to file as a part-year resident in each state.
- Non-resident – A non-resident is a person who makes income in a state but does not reside there. For example, many New Jersey residents commute to work in New York City. Because they make their income in New York but do not live there, they are considered non-residents. Similarly, if you live in New York and have a property in Connecticut that you rent to others (but do not occupy yourself), you would file a resident tax form for New York state and a non-resident tax form for Connecticut.
Many states have special forms to file non-resident taxes, though some use the same forms as full-year residents with certain provisions. Check your state’s tax website for more information on which forms you should be preparing.
Dividing your income
When you file part-year tax returns in multiple states, you’ll need to determine the total income you earned while living in each state.
If you work separate jobs in each state and receive a W-2 form from those in-state employers, it’s easy to separate your income and determine how much you’ve earned in each location. However, if you operate a business across state lines, own rental properties, or have another unique income situation, you’ll need to calculate how to allocate your income. There are two main methods for determining your income allocation:
- How long you lived in each state – If your income is the same every week or month, then you can allocate it based on the exact time you spent in each state.
- Payroll information – If your income fluctuates throughout the year, use your paystubs or invoices to determine how much you made during your time in each state.
If you have any unearned or passive income in a certain state, such as from stock sales or investments, you would attribute that income to the state you were living in when you received it.
Work with an experienced CPA
If you have property in multiple states and need help navigating the tax requirements for each, don’t try to handle it alone. Contact the experts at Miller & Company and schedule a free consultation with the best rated accounting firm located in New York City, Washington, DC and Sarasota, FL to discuss your part-year resident tax questions and preparation needs.