Residency

[Pianofp]

My father's residence is in one state and  I live in another. He has been with me since January because he was not able to care for himself. He has not agreed to sell his residence in his home state. We have not changed his mailing address or had the mail forwarded. We have some one that goes by to check on the house and the mail. We both use Turbo Tax to file. My question is: I know there is a question about residence (how long have you lived here during the year) and I'm not sure how to answer. Since he stills maintains the residence in his home state and receives mail there, do we say he lives there and is visiting me? His income is Social Security and a retirement. I will not claim him as dependent and he is not paying for staying with me. Your help would be appreciated. Thank you

[DoninGA]

If you are completing his 2022 tax return then his resident state is where he lived and maintained his domicile as of 12/31/2022. 

For tax year 2023 that is filed next year you will have to determine if he has changed his domicile to your state.  And if he has then his resident state for 2023 will be your state assuming that you plan to have him stay with you on a permanent basis or live in an assisted living community near you in your state in 2023.

An individual generally has only one domicile, which is the place considered the true home, the place where the individual intends to return to when away.

[Mike9241]

an important point. will he be returning to the home he owns?    wait too long to sell and the hone sale exclusion will be lost or limited. 

the rules to get the full exclusion are that it must be his primary residence (where he actually lives) and owns for any two out of five years before sale. a partial exclusion would likely be available if its sold and his occupancy during the 5 years before sale was less than 24 months (730 days). this could be justified based on his moving due to health reasons. 

[Opus 17]

A person can only have one domicile at a time.  Domicile is a person's true permanent home, there is no single factor that determines, but some key factors include the location of a house, car registration, voter registration, professional relationships like doctor and attorney, and significant social relationships.  Intent is also a key factor.  Most importantly for you, establishing a new domicile requires actively taking steps to abandon a prior domicile.

On one hand, it is possible to live away from your domicile for a long time without actually changing it.  And being unwilling to sell the existing home could be an important factor in showing that your father is still domiciled in his original state.  On the other hand, if you and your father have both acknowledged that he is now permanently living with you, and he has changed his doctors and other legal relationships, that may be enough to show he has changed his domicile even though he refuses to sell the house.  What is his intention?  Does he intend to return and live independently some day (even if that is medically unrealistic to you)?

Only you and he can analyze all the factors.

If he is domiciled in state A but living full time in state B, he still files a resident tax return in state A that reports and pays income tax on all his world-wide income.  He would only file a non-resident return for state B to report "state B-sourced" income.  State sourced income includes things like wages earned in state B and real estate income in state B, but does not include a pension or investment income that happens to be paid to him while living in state B.

However, some states have a "statutory resident" rule.  That means that even though the person is domiciled in state A, they will be treated as a resident of state B, and will be required to file a state B resident income tax return that pays tax on all their world-wide income, in addition to a state A resident income tax return. In this case, state A may be unwilling to give the usual credit for taxes paid to a non-resident state.

To know the full implications, we need to know which two states you are referring to.

It may be that if your father intends to remain domiciled in state A but lives all year in state B, he will owe double state income taxes.  The only way to fix that would be to abandon the domicile in state A and make state B his new domicile.  This would not necessarily require selling the house, but at least changing the mail and taking other steps such as moving key items of personal property from his house to yours, to show intent to permanently change domiciles.  I realize this may be difficult.  You will need to evaluate his situation and make your decisions as best you can. 

[Opus 17]

Additional notes: There is no need to report rental income or pay rent, family can live together without filing a mess of tax paperwork.  You might qualify to claim him as a dependent, especially if his medical needs grow, but you are not required to do so even if you could.  If you pay more than half his total financial support, you would be allowed to take a medical expense deduction for his medical expenses that you pay, even if you don't claim him as a dependent.  

Whether or not you claim him as a dependent or charge him rent has nothing to do with where his domicile is located. 

[Opus 17]

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@Mike9241 wrote:

an important point. will he be returning to the home he owns?    wait too long to sell and the hone sale exclusion will be lost or limited. 

the rules to get the full exclusion are that it must be his primary residence (where he actually lives) and owns for any two out of five years before sale. a partial exclusion would likely be available if its sold and his occupancy during the 5 years before sale was less than 24 months (730 days). this could be justified based on his moving due to health reasons. 

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This is tricky.

If the father refuses to sell, and lives with you so that your home is his main home, and that arrangement lasts more than 3 years, he would lose his personal capital gains exclusion if he later sells the house, and pay more capital gains tax than if he sold the house in less than 3 years.

However, if he owns the house until he dies, then whomever inherits it will pay no (or very little) capital gains tax when the home is sold. 

However again, if your father requires nursing home care, he could be forced to sell the home to pay for his medical care, and no one inherits anything except Uncle Sam. 

I would very strongly recommend some elder law/financial planning.  There are things that you and he should discuss, and some paperwork that should be prepared, to protect both of you from the legal consequences of caring for an aging parent.  

[rjs]

Your father's residence or domicile does not make any difference in his federal tax. TurboTax asks the question in order to determine what state tax return(s) he has to file, and whether he files as a resident or nonresident of each state.

Each state has its own rules about who is a resident for income tax purposes. It's not necessarily determined strictly by domicile, although domicile is usually a consideration. Maintaining permanent living quarters is also a consideration in some states. You have to check the definition of a resident for income tax purposes for both your state and the state where your father has his home. Since each state has different rules, it is possible to be considered a resident of more than one state, even though you can have only one domicile. Also note that the definition of a resident for income tax purposes could be different from the definition of a resident for other purposes.

[TomD8]

@Pianofp --

It would help if you could give us the names of the two states involved. 

That's because some states have a 6-month rule regarding residency for tax purposes.  Since your Dad still hasn't decided to abandon his domicile in the old state, and since he's been living with you since January, it's possible that he's now in a situation of dual residency.  A dual resident is a person who's both a domiciliary resident of one state and a resident by statute of another state.  This would determine how he should file his state tax return(s).

Another issue is that some states exempt social security income from taxation.  And retirement income is generally taxable only by one's state of domicile.

[Pianofp]

The state question is his-Alabama and mine-Tennessee

[TomD8]

@Pianofp --

Alabama will consider your father a resident for tax purposes if he is 1) domiciled in Alabama; or 2) if he maintains a "permanent place of abode" in Alabama.  Per Alabama law, A permanent place of abode is interpreted to mean a dwelling place permanently maintained by the taxpayer; it is not necessary that he be the owner, or that he occupy it himself.  Since your father still owns and maintains his Alabama home, it appears that his income remains taxable by Alabama - even though he is currently living with you in Tennessee.

Tennessee, of course, has no income tax.

Here is a link to the text of Alabama's law:

https://www.law.cornell.edu/regulations/alabama/Ala-Admin-Code-r-810-3-2-.01