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Many families are fleeing big cities. Are you one of them? There are some significant tax ramifications that you need to consider now, so you aren’t surprised next April 15th.
Did You Move To A New State?
If you’ve established residency in a new state, remember that you will need to file a part-year resident return in the state where you moved from and also the state that you moved to. This means that you should be calculating estimated income taxes to that new state as next April 15th you will be required to file a part-year return there. If you fail to make these estimated payments, you may be subject to failure to pay penalties. This is a good time to call me to make sure we get your income tax projections done for your federal taxes and your prior and new state taxes.
Were You Paying City Taxes Where You Moved From?
Let’s say you were living in Manhattan and you permanently moved to New Jersey. While you were a resident of New York City, you were subject to New York City income taxes. Now that you have moved out of New York City and have established residency elsewhere, you no longer will need to pay New York City income taxes. This is important for people that have a W-2 from New York City. You should let your employer know that you are no longer subject to New York City income taxes and that they should not be withheld any longer from your paycheck. This will give you extra money in your pocket now which many of us need. Many cities around the country assess a city income tax. So please double check your own situation to see if this applies to you.
You should fill out a brand new W-4 form, a federal one and a state one. A W-4 form tells your employer the level of income taxes that you want withheld from your pay at the federal, state and city levels.
IMPORTANT NOTE: What if you haven’t sold your old residence, but you have physically moved?
In this case, moving to a new home does NOT mean you are instantly a resident of that new jurisdiction. Be sure to make changes to your mailing address, auto and homeowner’s insurance, and voter’s registration. I say this because the city that you moved from will still attempt to say you were a full year resident of that city and will try to collect a full year of income tax from you, if you still own a home there.
Residence Sale Gain Exclusion
Now’s a good time to refresh you on the rules regarding selling a residence. If you’ve lived in your residence two of the past five years a married couple can ignore the first $500,000 of gain that they realized on the sale of a residence, and a single person can ignore the first $250,000 of gain.
Some people still think that the old rules apply when selling their residence. Those rules said that any gain that you realize on the sale of a residence would be rolled into the basis of any new residence that you purchased. But today the sale of one residence and the gain on it, has nothing to do with any new residence purchased. Again, they are completely separate transactions for tax purposes.
If you’re selling your residence, you need a CPA to review the closing disclosure documents well ahead of time before you sit at the closing table. Remember, that a closing disclosure, formerly called a HUD-1 statement, is a tax and accounting document first, before it is a legal document. Always have all of the documents for any real estate closing reviewed by a CPA ahead of time.
Are You Converting Your Prior Residence In A City To A Rental Property Instead Of Selling It?
This involves establishing a basis (initial purchase price and costs, plus capital improvements made since purchased) for your former home. A rental property’s income or loss is reflected on form Schedule E on your form 1040. Take the time now to gather the initial closing disclosure for when you bought that property, and also make a list of capital improvements you made since you purchased it. I will need all of that information to establish this property as an investment property on your taxes going forward.
The most common question that I receive when someone is buying a new investment property or converting a residence to one, is how much rent should I charge? This is a great question and the best place to get this answer is from a seasoned real estate agent who specializes in investment properties in your area. You can also check classified ads. Don’t forget that real estate brokers not only sell houses, they also represent clients who are trying to rent their properties. Broker websites can also be a great source of information and a good place to start researching what you should be charging for rent.
Getting the true fair market value rent for your rental property is the most important piece of information needed to analyze a rental property’s “rentability.”
Like CPAs, all real estate agents are not alike. Many people think that they are all the same, like a gallon of milk or a gallon of gas. If you don’t have a real estate agent in your circle or trusted professionals, call me so I can introduce you to one.
My firm specializes in residential and commercial investment properties in all 50 states. We are always here to answer your questions.
You Need A CPA More Than Ever
I hope you realize now, that anytime that you move you should be consulting with your CPA to assess the tax impact to your family and business.
Questions? Concerns? Call me on (732) 673-0510.
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Please reach out to me without hesitation with any tax, business or accounting question, and to schedule a consultation.
Tax Laws are complex.
It is very easy to make mistakes that can incur penalties.
Do you have a Tax, Accounting or Business Question?
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Remember,
“If We Aren’t Working For You, Then You Aren’t Working At Your Best”
Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
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