big tax ruling - bad news for second homes in nyc?

Anything to discourage the pied-a-terre riff-raff works for me.

I suspect the number of people who live in NJ or CT ... AND work in NYS ... AND own a second home in NYS ... is really quite small.

Lucille Bluth and a few others, although I don't remember if she already has a pied-à-terre or just wants one.

But I certainly support a heavy tax on pied-à-terre owners in NY. I've long thought the best way to implement it is to jack RE taxes up radically, then offer an equal-sized credit to full-time residents of that property, filing taxes as such.

"The new ruling applies only to people who spend more than 183 days in New York, which would include many out-of-state commuters to the city."

How is this earth-shattering? 183 days is half the year plus one day. If someone spends more than half the year in a state, then it is their principal residence, simple as that.

BUT this part is unconstitutional, no question: "Under the ruling, if an owner doesn't spend a single a day in a home it could still count toward a permanent residence."

This law directly conflicts itself; "not a single day" but "only applies to 183 days".

WTF? What IS the actual law, then? Makes absolutely NO sense. . .

The difference is that the 183 days is basically talking about work days--i.e., you come into the city for part of the day and then leave--whereas the "not a single day" applies to how much time you spend in your dwelling.

So, if you live in Connecticut, work in New York, and own a house in New York, you may owe NY income taxes on your non-NY income even if you never actually visit your NY house.

Let me get a bigger hammer for that nail.

NYC Matt - what is your problem??? Is it just out right class envy? What does your shrink have to say about that?

@jordyn: What about landlords that own property in the city and come to work in the city? Are their properties all homes of theirs? What if they only own one rental, is that their home?

This makes no sense.

needsadvice : I have no clue. It doesn't seem like that's addressed directly by the case.

In any case, I'm not a lawyer and know nothing about taxes--just trying to clarify what the article seems to say.

This is very scary for us. Our only reason to have a place here is because of a son's medical condition. We don't have any NY state wages/income and we document every day we spend in the city so we are sure to be here less than the 183 days but this ruling seems to contradict itself.

rosina, it doesn't sound like this would affect you at all, as I remember your situation.

What this changes is that it counts as "days" the days that someone sets foot in NY, but doesn't use his NY home.

I believe you're out of NY altogether on days when you're not using your apartment, right?

Thanks Alanhart, you are right. we are in SC when we are not in NYC. I guess you are saying that it really only applies to out of state commuters? I so hope you are right and applaud your reading skills! Panic blurred mine!

Nope, based on this, if you have heat, hot and cold running wayer, and a roof - start writing checks.

"Mr. Pinto ruled that the couple's Long Island vacation home qualifies under the law as a permanent abode because it was suitable for living year-round—whether or not the couple actually stayed in the home wasn't relevant. Under the ruling, if an owner doesn't spend a single a day in a home it could still count toward a permanent residence."

only because he works in NYC. The ruling says if you work in NY and own a home in NY, it doesn't matter how many days you stay in that home.

for those of you who want more detail, here is the case opinion: http://www.nysdta.org/Determinations/822324.det.htm

and this was the issue before the court:

Whether petitioners were New York State residents during the years in issue who maintained a permanent place of abode in this state and spent in the aggregate more than 183 days in this state in each of the taxable years in issue.

so, you are a NYS resident as long as you maintain a permanent place of abode and spend more than 183 days in NY (whether working or not in NY).

@Kiss Its really not that clear. In the ruling the party worked 5 days a week in NYC but commuted home. Key here is "Understanding that Mr. Barker had spent more than 183 days in New York State and City during the years in issue". Mr. Barker's work days counted and then they went to the residence issue. We own in New York but work elsewhere and spend far fewer than !83 days. I'm not worried, (yet),

ok, but can i still point out that this paragraph is funny without sending any geriatric's pacemakers into overdrive?

"The Barkers countered that they used the home only a few days a year, adding that the refrigerator was usually empty, court documents showed. They cited clothing not being stored there as evidence that it was a part-time residence."

that is all

> The appeals court upheld the ruling that it's not the owners' intended use of the house that matters, but whether the home could be used all year long.

imho taxing a pied-a-terre more heavily than a 1st residency makes sense, as it's a discretionary item that inflates housing costs for everybody else. property taxes will be increasing across the board, but those that don't vote will end up paying more of the burden.

sjtmd -- I guess Matt is afraid of pied-a-terre-orism. Maybe they surreptitiously tipped the doorman.

although it's not directly ruled here i think you would be ok ownign a rental property in NY as you dont have access BUT for @Rosina if you spend more than 183 days in New York And have the ability to "stay" in your apartment eg he is not a tennant - even though primarily used by your son this this DIRECTLY affects you.

1/ sell the apartment to your son
2/ spend less than 183 day in New York

it is irrelevant about whether you are working or just visiting.

Thanks for your concern Deanc, and we are very careful NOT to spend more than 183 days here. However, our son owns his own apartment here and our reason for being is backup for his wife and very young family. after reading and rereading the ruling we think we are okay for now in that we live full time elsewhere, earn no money in NY, and keep our visits limited. This will all work well as long as son is stable and needs us only sporadically. Things will probably change in the future but we will give up the other residency at that time. again...thanks for thinking for us!

@Rosina - why are you even commenting on this if your son owns the apartment/.....??

There're two apartments: Rosina's and her son's.

Midtowner - great come back - competition for Falco! Maybe Matt is xenophobic and thinks that part time residents are all French.

NWT...you are right. Our son owns his own co-op apartment in gramercy and we are in midtown in a co-op. We come and go depending on who needs us when and actually have a second son with a young family in manhattan also. We really don't want to be paying ny st/city taxes and try to watch carefully our dates in the city. At some point we will have to move into the city full time and would fully expect to have to pay whatever is due...but hopefully not yet.

"This year, the state tax department, which collects both state and city income taxes, is adding a new line to 2010 tax forms, asking state residents who own second, or perhaps third and fourth, homes to specify how many days they spent in New York City. A number nearing 183 will be a red flag."

NYT

February 23, 2011
In City Often? Tax Man Asks Some for Tally
By CARA BUCKLEY
One couple, in a spirited attempt to claim that they were not subject to $41,000 in New York City income taxes, contended that their million-dollar Manhattan apartment was little more than “a hotel substitute” and that their “historic roots” were on Long Island, where they kept a yacht and a 3,500-square-foot home.

A husband and wife with an Upper East Side co-op who were facing over $270,000 in income tax penalties presented affidavits from managers at their regular hardware and wine shops in Connecticut, hoping to prove that they did not live in the city.

Yet another couple noted the devotion, time and money — $470,000 — that the wife had lavished on her garden in East Hampton, “which provided her with a great deal of solace”; it was evidence, they said, that they spent most of their time outside the city and that therefore they did not owe it $25,500.

The well-to-do with more than one home should be warned: it is the equivalent of sending a come-hither look to the tax man. And, as each of these unfortunates learned, pledging allegiance to the East End or the Constitution State will not save you from a very large bill.

Under longstanding rules, a person who spends more than half the year and maintains a home in New York City is taxed as a city resident. But this year, the state tax department, which collects both state and city income taxes, is adding a new line to 2010 tax forms, asking state residents who own second, or perhaps third and fourth, homes to specify how many days they spent in New York City. A number nearing 183 will be a red flag.

Thus, accountants and tax lawyers have been reminding their multi-homed clients to keep paper trails, as recent cases have shown the extent to which tax auditors and those being audited will go to try to prove — or disprove — permanent residence in the city.

In the event of an audit, the onus is on the taxpayers to prove that they were not in New York City, or in some cases, the state, for more than 183 days. Auditors and tax tribunals in these cases are often buried in blizzards of diaries, credit card slips, E-ZPass statements, e-mail and phone records.

For the New York State Department of Taxation and Finance, and the law, a New York minute counts as a day. Popping into Barneys counts as a New York City day. Same for lunching at Le Bernadin.

In one case that reached the state’s tax tribunal last fall, the hedge fund billionaire Julian H. Robertson Jr. presented evidence that he had had his assistant painstakingly collect to account for his whereabouts each day, and said that on some late nights he had frantically searched for a car to take him back to Locust Valley, on Long Island, so that he would be outside the city limits before midnight. He convinced the tribunal that he had spent less than half of 2000, the year in question, in the city, and thus did not owe back taxes of $27 million.

Yet not everyone has the means, or the assistants, to so meticulously record their comings and goings. One tax lawyer, Timothy Noonan, is creating an iPhone app for clients to monitor their “New York days,” using GPS. “I have many clients who track days,” Mr. Noonan wrote in an e-mail, “and yes, many of these clients are very close to the line.”

While the question is new on the 2010 tax form, state officials said they had long been on the lookout for residency discrepancies.

About 230 of the tax department’s 1,800 auditors focus on residency cases, and the number of such audits has been inching up, to 2,508 for the 2010 fiscal year, which ended March 31, from 2,000 in fiscal year 2008 (though down from 2,900 six years ago).

“It’s not more aggressively auditing people,” Brad Maione, a spokesman from the tax department, said. “Our goal is for people to get it right on their tax return when they file it. Our audit program is to identify where people could be doing it wrong and to get them to correct it.”

A person who spends more than half the year in the city and has a permanent residence in it must pay city and state taxes on every dollar of their income, including money earned outside the city and from personal investments, which can sometimes be substantial.

And the taxing authorities do not even have to prove that a person’s primary residence is in the five boroughs; they only have to show that the person maintains a “permanent place of abode” in the city, which tax officials interpret as a home that is habitable year-round. Proving the amount of time spent there is up to the taxpayer.

Thomas Puccio, owner of an Upper East Side co-op and a home in Weston, Conn., is the Park Avenue lawyer who successfully defended Claus von Bülow in his attempted murder trial. But he could not save himself from the tax department. He said he had spent only 111 days in the city or state in 2003, the audited year, but the tribunal concluded last month that despite the affidavits from the hardware store and wine shop in Connecticut, Mr. Puccio did not prove that he was not in the city or the state for another 109 days, meaning he had crossed the 183-day threshold and owed $271,382.

Peter Handal, the chief executive of Dale Carnegie & Associates, and his wife, Patricia, kept a home in a Park Avenue hotel. Neither her garden in East Hampton nor reams of credit card records and diary entries proved to the tribunal that the couple had spent most of 1999 outside the city.

The tax department took a second look at Dr. Norman Schulman and Susan Schulman, the couple rooted on Long Island, because they did not acknowledge their Upper East Side apartment on tax forms. The Schulmans also denied spending more than 183 days for each of the three years for which they were audited, saying they spent little time in the city except for Dr. Schulman’s work, as director of Lenox Hill Hospital’s Division of Plastic Surgery. The tribunal ruled against them.

In a case decided last month, clients of Mr. Noonan — John and Laura Barker of New Canaan, Conn. — unsuccessfully appealed the tax department’s finding that they owed $1 million to the state because they had a vacation home in Napeague, near Montauk.

Mr. Barker worked as an investment manager in New York City and did not dispute that he spent more than 183 days there. But the couple rarely stayed in Napeague and argued that it did not count as a New York State residence because state law says a “camp or cottage” suitable only for vacation use does not count as a permanent abode.

The opposing sides offered up details startling in their exactitude. The Barkers noted that the home lacked interior insulation and only had single-pane windows “in need of some repair.”

The tax department countered that Mrs. Barker’s parents used the place from November to May, that oil was delivered regularly and that the couple had year-round access. The tribunal found that the home, modest as it was, was not a camp or a cottage. Mr. Noonan said his clients were considering an appeal, in which they would argue that the tax laws were being misapplied to short-term vacationers in the state.

The decision, nonetheless, sent a small jitter through the Hamptons real estate market. Judi A. Desiderio, president of Town and County Real Estate in East Hampton, said three buyers from Connecticut had called off their hunts for multimillion-dollar homes this month. Instead, she said, they would simply rent from Memorial Day to Labor Day.

How very sad is it that hedge fund billionaire Julian H. Robertson Jr. is so hell-bent on not paying taxes that he so inconveniences himself, presumably depriving himself either of a full night of pleasurable socializing, or of business entertainment and other dealings, to save a few dollars? It's from hunger.

If the city wants to make their life easy, just scan the records for people with kids in NYC private schools and second homes. I'm aware of parents in my childs school that use their Hampton's address as their primary address to avoid NYC taxes. Given their are aound 170 days of school, not hitting 183 would be pretty tough to do.

they could be sending the kids to school via helicopter.

If u work in the city the weekends add up to 104 days. Vacation/holidays another 36. So say 140 days are either vacation/weekend. That leaves 365-1400 = 225 total working days. So even if you spend all your working days in NYC you just have to come up with 225-183 = 42 days out of the whole year u need to have receipts as to being somewhere else. Receipts/stubs/whatever. So easy to get around this law. People are getting such tax writeoffs by owning the apt that they really should pay the 3% NYC income tax but they won't b/c of greed and it's too easy to get around it. Probably a waste of auditor resources trying to enforce the tax rule.

Huh???

Do you think the City just assumes that you're not in town on your weekend/vacation/holidays? Or do you assume those days wouldn't count as "living" in the City?

????...most people would utilize this for a long commute. On the weekends/vacation/sick days etc. u don't work in the city so no need to stay @ the apt. So it doesn't count as days here...what don't u get?

If people just use it for vacation then I highly doubt they would spend 1/2 the year here. If that's the case then just might as well live here year round.

Either way getting a paper trail is "pretty doable". So this is not much of an issue. Waste of auditor resources. Should focus on the big ticket guys and make sure capturing all those bonuses/wages.

for the 42 days you could have a pizza receipt or how about Chinese for each day and say..."Ya I worked from home"

The obvious question here is why doesn't EVERYONE who works in New York City pay New York City taxes? If you work in New York state, you have to pay the state taxes regardless of whether you live there, so why should this be any different.

As I understand it, the burden of proof is on you to prove the number of days, and even driving through the city to get to an airport or whatever counts as a day (damned EZ pass!). I do not underestimate how difficult and time consuming this process is. A friend of mine who rented in the UES and worked in NYC but lived with his fiancee in NJ got nailed for NYC taxes. He paid the taxes and gave up the apt. I think it is almost impossible to prove that you were not in the NYC when you have a place there and the burden of proof is on you. They audit for cell phone records, ATM usage, credit card charges, etc.

I work in NYC but my primary residence is in Westchester. I rarely visit my pied-a-terre. It's mostly used by my spouse and daughter on weekends. Will the IRS accept bridge toll receipts proving I drive home each night?

I think everyone will need to go to their local (the more local the better) Starbucks and get a grande mocha frappe latte chino every morning (the earlier the better) and pay with their credit card. At the end of the year, see how many overpriced brews you purchased. Hopefully, the tax man will accept that. Bottom line - I have been looking for a pied a terre for well over a year. The costs, hassles, etc. always detered me. These potential tax burdens have proven to be the final straw. Ultimately, why risk it?

ChrisT,

interesting, The ruling probably extends to spouses. Ie you would have to prove you AND your spouse were not in NYC for X days.

What a mess.

chris, the way that i read it is that it doesn't matter if you EVER use your pied-a-terre. the determining factors are whether or not you own one in the city, and whether or not you step foot in the city 183 days during the year.

Fsteve, your numbers are farcical unless the employee spends a fair amount of time traveling for business.

36 vacation + holiday days=seven weekday weeks, implying five weeks of vacation. another 42 days = over eight weekday weeks (you've already discounted for weekends).

Also, it's not sufficient to show that you've made a transaction in Connecticut on a particular day. When records are subpoenaed and audited, there can be not one transaction done at any time within a particular day in NY. Hitting Charbucks in CT at lunchtime doesn't preclude visiting a sex club for the evening in town.

For example.

I think steveF did a very good job, and he's such a big boy, and always smiling and happy. Special people are so nice.

sjtmd, ok guess we won't be seeing you around anymore. Take care.
For 3% income tax on your AGI are u kidding me? It's peanuts. Say you make 400k and have an adjusted gross of 275k it's only 8k if you somehow can't get out of it. More than offset by the write-offs. So easy to prove u were not in the city so it's a non-event. However they should pay if it is the case b/c it's the law and it will help balance the budget. It will also lessen the burden on evryone else who owns here and pays taxes. Like me.

aboutready, yes, unfortunately that's how I read it too. Hoping there was a way around it by proving I went home every night. I am not in the NYC office every day and have 25 vacation days and 10 holidays, but I do drive through the city most days (trackable with my employer's EZPass). I will keep records this year and see how it works out. 2010 is not in question since I closed in December.

Can anyone recommend a tax preparer who has experience in real estate and the entertainment biz?

How does that rule apply to Flight attendant and Artists on the road (or on the Air) that reside in NY but spend most of their time traveling because of work?

Scratch that... They are unlikely to have two homes...

great move by the Tax Collectors of NY - we need every penny from these rich cats

Now I know why I never was able to meet the Tiger hedgo in person - he was never in his office LOL