Tax Ruling Could Crush The Hamptons

Last month a New York court hit a New Canaan, Connecticut couple with a $1.06 million income tax bill. Why? Because they own a summer home on Long Island that they visited just a few times. It’s long been the case that income earned in the state of New York is subject to New York income tax, but this new ruling could also include income made out of state, and even a spouse’s income even though they work elsewhere.

The tax liability hinges on whether a property is classified as a “permanent residence,” and this new ruling reinterprets the meaning of those two magic words. Previously,  individuals who spent more than 183 days a year in their New York properties were required to declare that as their permanent residence, and pay New York income tax on their earnings. The new ruling, originally made in 2009 and upheld last month on appeal, says that vacation homes suitable for year-round living can be considered permanent residences, even if the owners don’t spend a single day in them.

Tax collectors are grinning all the way to the bank, but this new law could have an adverse affect on sales in vacation-home communities like the Hamptons as well as second-home sales to commuters. “People will think twice about spending any summer time in New York,” says Robert Willens, a New York-based tax consultant. “The amount of tax they could be subjected to is likely to outweigh the benefit.”

Source: Wall Street Journal

Photo: dealbreaker.com

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