I am new here and just moved from Canada. I lived in US before as well ,so I have established credit history. I am a software consultant and some time require relocation or travel . I have some savings and wanted to purchase a Condo/ townhouse. My concern is if I relocate to a neighboring state (Drivable) what could be the implications? Any tax issues?
My point was to utilize some of my savings and let the property be rental in case I need to move. Will there be any issues of tax for primary residence on selling or how does that work.
So you are buying a condo and you will be living in it at first, then possibly relocating and renting it. If you live in it for two years or more, do not rent it, and then sell it, you get to take the gain tax-free up to $250k ($500K if married filing a joint return). If you sell your residence at a loss, there is no deduction allowed.
During the time it is your primary residence, you can deduct your mortgage interest and real estate taxes as personal deductions.
If you convert your primary residence to a rental property, you can deduct mortgage interest, real estate taxes, and more as rental expense. When you sell the rental property, if you sell at a gain, your exclusion is determined by looking back five years to see if it was your principal residence during any part of that time period. If it was, some of the gain may be excludible. If not, it is treated strictly as a rental property with all gain taxed.
If you sell your rental property at a loss, the deductible part of the loss applies only to the period after conversion to a rental property. Any decrease in value before it was converted is not deductible.
If you reside in one state and work in another state, you will pay any applicable income tax due on the sale of your residence to your state of residence. If the other state also taxes you, your state of residence generally gives you a credit. So your earning income in a neighboring state is not a big issue as far as taxes related to your condo are concerned.
posted: Nov. 29, 2012 @ 5:08p
When you say drivable neighboring state, are you planning to stay in the condo in State A while working in State B?
Usually, neighboring states have reciprocal tax agreements that simplify the issues with living in one state and having your income tax withheld in another, so you don't ending up having your income taxed in both states. It could be a bit messier if you lived in Michigan and worked in Texas, but living in Michigan and working in Wisconsin doesn't complicate your taxes that much.
posted: Nov. 30, 2012 @ 10:06a
Thanks all for your replies! When I said driveable neighbouring state, I meant I lived and worked in State A, but then moved to another state B(Working also in B) but converted my primary resince in State A to a rental property.So in that case could there be any tax implications?
posted: Nov. 30, 2012 @ 12:24p
Theres a lot of tax differences between a primary residence and a rental. But not much specific to moving out of state.
If you buy a house and then turn it into a rental the tax situation changes some. With a primary residence you can deduct your property tax and mortgage interest as itemized deductions which only helps if your itemizations are higher than standard. If you change it to a rental then you can still deduct property tax and interest as well as any other expense and you can depreciate the property so you have more dedductions but you also have to claim the rent as income.
If your current state has a Homestead / primary residence exemption for property tax and you turn it into a rental then your property tax will likely go up.
If you own a house as a primary residence and sell it then you get an exemption for capital gains. If you convert the property to a rental then that exemption on capital gains goes away.
Moving from one state to another may require you to file income taxes in both states assuming both have state income tax. You'd have rental income in the old state so technically you should file state taxes there. If you work and live in the new state you'd need to file there too.
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