Where’s Your Teddy Bear, and Other Residency Requirements for New Yorkers

By Stephen J. Silverberg
New York Elder Law Attorney

Losing the local and state tax deduction has more than a few New Yorkers thinking about making a lower tax cost state their primary residence. For many, that means Florida, especially if they already own a second residence in the Sunshine State. A move to Florida can save a New York resident up to 9% in income taxes and up to 16% in estate taxes.

But state tax collectors are not letting the money leave the states so fast and are upping their game, according to The New York Times article The Teddy Bear Test, and Other Ways to Pass a State Tax Audit.” 

What’s the teddy bear about? One of the five key requirements for establishing residency in another state asks where you keep your “nearest and dearest” people and possessions. So if you plan on decamping for Florida but your collectible cars, wine cellar and Cabbage Patch doll collections are staying in New York, expect an audit.

People used to game the residence requirements with the rule of 183 days, or six months plus one day, as a marker for residence to avoid state income and estate taxes. But this simplified approach doesn’t work so well anymore.

New York can deem you a resident after a few days or months. New York tax collectors assume you are living in the state even if you spend most of your time in another state. They want your tax dollars, and they’re not giving up without an audit.

Also, if you file for the Florida homestead exemption, the Florida county clerk will check to see if you have the New York State STARR exemption. If you are, Florida will deny your application for the homestead exemption. However, if you give up your STARR exemption and receive the Florida homestead exemption, New York State is not bound by the Florida homestead exemption. You can end up a New York State resident for income tax purposes but not receive the benefits of the STARR program.

With taxes, you’re guilty until proven innocent. And the bigger the tax dollars, the more aggressive high tax state collectors will be. Even if you’ve legitimately moved, as more than one family has discovered. Income from wages is not likely to prove anything, as today we can work from anywhere.

Here’s what tax collectors want to know about New Yorkers trying to prove residency. It doesn’t mean you won’t get audited, just that you’ll have a good start on proving residency:

  • Days you’ve lived in the state – there are a few apps you can use, but don’t neglect receipts, utility bills and invoices.
  • Membership in country clubs and churches or synagogues.
  • Driver’s license.
  • Voter registration.
  • Did you buy round trip tickets when you go to Florida?
  • The size and cost of the New York home, compared to residences you own in other states.
  • The location of your business interests.
  • Where your family is located (your “dearest”)
  • Where you keep your “nearest” items – i.e., your teddy bear, which is why this has become known as the Teddy Bear Test

Another piece of advice – the first few years when establishing residency in a new state, don’t come back to your old state too often.

Another strategy – if you have no intention of selling your high-tax state home, consider classifying it as a rental property. The IRS will want you to prove that it was rented out with rental income on your tax returns. Some experts say you might use a brokerage agreement and a good-faith attempt to rent the property. That’s a decision you need to be comfortable with.

How much is it worth to get this right? Plenty. Taxes aren’t even the worst part – audit fees can range from $25,000 to $100,000, not including penalties, taxes and legal fees.

Your best strategy: expect to be audited, and prepare for it thoroughly.

And if you were wondering where else to go besides Florida, these states have no state income tax: Alaska, Nevada, South Dakota, Washington and Wyoming. That doesn’t mean they don’t have other taxes, so do your homework before making a big move.

About the Author
Stephen J. Silverberg is nationally recognized as a leader in the areas of estate planning, estate administration, asset preservation planning, and elder law. He is a past president of the prestigious National Academy of Elder Law Attorneys (NAELA), and a founding member and past president of the New York State chapter of NAELA.
Posted in Tax