February 17, 2011
Robert Spielman,Tax & Business Partner, Quoted in The Wall Street Journal Article - Second Homes May Be Costly at Tax Time
By Craig Karmin
With New York state buckling under severe financial stress, Albany is finding new ways to boost revenue through court decisions and new requirements on tax filings.
Starting with the 2010 returns, the state Taxation Department will require state residents who own second homes in New York City to report the number of days they spend in the city. Tax accountants expect this new reporting requirement to produce more audits for people commuting from the Westchester and Long Island suburbs and result in more taxes paid to New York City.
Who Owes More
If you meet all these conditions, New York state wants to tax all your income, no matter where you earn it:
- You live outside of New York state.
- You spend more than 183 days a year in New York.
- You own a home in New York that the state deems a permanent residence, or suitable for year-around use regardless of how many days you use it.
Source: Tax consultants, state tax law
The number of days spent in New York City can have significant tax implications. If city homeowners whose primary residences are elsewhere in New York state spend more than 183 days a year in the city, they must pay New York City income tax. Those who are in the city 183 days or fewer, aren't subject to any New York City income tax.
Before the new disclosure requirement, New York taxpayers were required only to say whether they maintained living quarters in the city. Now they have to specify how many days they spend here.
A spokesman for the state Taxation Department said the change to the tax form was to ensure that people "who maintain living quarters in New York City are paying the proper tax." New York City tax is calculated and paid on New York state tax returns. Some accountants predict that New York residents with Manhattan pied–à–terres who report a number close to 183 days face a high probability of an audit.
"This new requirement will be a like a red flag waved at auditors," says Robert Spielman, a certified public accountant in Melville, N.Y.
New York state residents who own a property in the city but have a primary residence elsewhere will have to document their whereabouts if audited. That could mean producing credit-card receipts, telephone records, airline tickets, or ATM receipts indicating they were not in the city for the necessary number of days.
The new requirement marks the latest potential headache for people who own second homes in New York. Last month, a New York tax appeals tribunal affirmed a decision that a New Canaan, Conn., resident who worked in Manhattan and owned a Long Island home, owed an additional $1 million to New York for the period of 2002 to 2004.
The amount reflected taxes on income the resident, John Barker, and his wife earned outside of New York, plus interest and penalties. Mr. Barker already was paying New York state taxes on income he was earning in the state.
Accountants say the case will likely raise the issue with many out-of-state residents who might not have realized their second home could make them subject to additional taxes if they spend more than 183 days in New York.
"We had clients who heard about the ruling and all of sudden put on the brakes," says Judi Desiderio, a broker at Town & Country, a real-estate agency that focuses on the East End of Long Island. "They're saying, 'This is why I'll be a renter, not a buyer.'"
The tax tribunal ruled that the New York home of the Connecticut couple qualified as a permanent residence because it was suitable for year-round use, even though Mr. Barker and his wife stayed there only a few times a year.
Philip London, a New York City accountant, says the Barkers would have improved their case if they rented out the house for more than a month because they "would not have had use of the abode for the whole year."
He added, however, that the state could view the practice as a means to avoid tax if a homeowner rents out a summer home on a recurring basis.