Which state income tax would I pay in this situation?

[Jusdreiin]

I am considering purchasing two houses in two different states, Tennesse and Missouri. The house in Tennesse will be my permanent residence. I work remotely 100% of the time, pre and post-pandemic. If I work remotely from my Missouri home will I have to pay state income tax for Missouri? Would this change if I was working as a freelancer(or contractor) or as an employee of a company?

[TomD8]

Income earned from work actually (physically) performed in Missouri is "Missouri-source" income, and is subject to taxation by the state of Missouri.  This is true whether you are an employee or an independent contractor, and whether or not you’re a legal resident of Missouri. 

Such income would also be taxable by your state of legal residence if your state of legal residence taxed earned income, which Tennessee does not.

[Hal_Al · Accepted solution]

There's a tax question you didn't ask: Can the house in Tennessee  be my  residence, for tax purposes?

The answer depends on more detail. If the answer is no, and MO is you legal residence, then all your income is taxable by MO, no matter where earned. 

The primary factor is where do you live now (prior to buying the 2nd home).  If it's MO, the you are still a MO resident until you take concrete steps to establish TN residency. 

See: https://dor.mo.gov/personal/nonresident/#:~:text=A%20Missouri%20domiciled%20individual%20is,the%20ta...

The general rule is: your report all your income on your home state return, even the income earned out of state. You file a non-resident state return for the state you worked in and pay tax to that state. Your home state will give you a credit, or partial credit, for what you paid the non-resident state. 

Since TN does not have an income tax, you do not have a non-resident return to file. But you still have to pay tax on that income to your home state.

[Jusdreiin]

Thank you, this was a very helpful link!

I currently live in Texas, but want to buy a home in Tennesse as my permanent residence(making it my home state) and move there, and then buy a second home in Missouri. I see now that doing that would make me a resident of Missouri and thus have to pay state income taxes.

[TomD8]

@Jusdreiin 

<<I see now that doing that would make me a resident of Missouri>>

Buying a second home in Missouri does not automatically make you a resident of Missouri for tax purposes.  Your State of Residence for tax purposes is the state in which your main, primary residence (your domicile in tax terminology) is located.  

If your domicile is in TN, for tax purposes you are a resident of TN.  If you are a TN resident with income whose source is in MO, you would file a non-resident tax return in MO.   The only exception is if you maintain a second home in MO and spend more than 183 days of the tax year in MO.  In that case, you'd have to file your MO tax return as a resident.

[Jusdreiin]

I'm confused, sorry. @TomD8 

On the linked website it says a nonresident is someone who

1. maintains no permanent place of abode in Missouri; (I would have a second house here)
2. maintains a permanent place of abode elsewhere; and (The Tennesse domicile)
3. spends in the aggregate not more than 30 days of the taxable year in Missouri. (I would probably spend the summer months here, May thru September (153 days))

So I couldn't be considered a nonresident, but maybe a Part-Year Resident? Which would mean I would have to file state taxes with Missouri?

The source of income won't be coming from Missouri directly, but I would be earning it while in Missouri since it'll be remote work.

[TomD8 · Accepted solution]

1.  In tax terminology, a part-year resident is a person who literally moves from one state to another during the tax year.   Such a person has changed their domicile - their main, permanent home - from one state to another.  That person is a part-year resident of each of the two states for that tax year.  A taxpayer can have only one domicile at a time.  Your domiciliary state can tax all your income, regardless of its source.

2.  Income earned from work actually (physically) performed in Missouri is Missouri-source income, even if the employer is located in another state.  With few exceptions, work income is sourced where the work is actually performed.  Missouri-source income is taxable by Missouri whether or not the taxpayer is a Missouri resident.

3.  If a person's domicile is in one state the entire tax year, but they have income sourced in another state, they file taxes as a resident of the domiciliary state and a non-resident of the other state.  A common example is a person who lives in Kansas but works in Missouri.  Such a person would file taxes as a non-resident of Missouri and a resident of Kansas.   (The rules are a bit different in the case of states that have reciprocal agreements with each other.)

4.  A "permanent place of abode" is not the same as a domicile.  A permanent place of abode is a dwelling place that is maintained by the taxpayer and is suitable for year-round use.  For example, a person who lives in Kansas but maintains a second home or apartment in Missouri is domiciled in Kansas and has a permanent place of abode in Missouri.   Such a person would not have to file taxes in Missouri unless they had Missouri-source income.

5.  Having a permanent place of abode in a particular state does not by itself make you a resident of that state for tax purposes.  However, most states will consider you a resident for tax purposes if you have a permanent place of abode there, and you spend more than half the year living there.   In that situation you'd be considered a "statutory" resident of that state.  It is possible to be a domiciliary resident of one state and a statutory resident of another.

[williamwoodard2]

I Live and work in SC. But last year I purchased a home Fl. how do I claim the loan interest and taxes paid in Fl.

[BillM223]

Is this your first or second home (i.e., up to two at the same time)? You can claim the loan interest and taxes no matter where the house(s) are, on the federal return. And if there is anything to do with the state return, it will flow down from the federal return.

Enter the interest and taxes at Deductions & Credits->Your Home->Mortgage Interest, Refinancing and Insurance.

NOTE: there is no individual state income tax in Florida.