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Tax Law (Questions About Taxes)/Expatriate Purchasing Vacation Home in US

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Question
IJ, I am an expat living overseas for 5 years and do not maintain a residence in the US, but do retain my TX drivers license as this was the last state I lived in.  This is really the only claim that I have to TX since mail is going to parents address. TX does not have any state tax liability.

I am planning to purchase a vacation home in Montana which does have state tax liability so I want to avoid triggering residency. Is there anything that I need to do to avoid giving MT a chance to claim me as a non-resident and tax overseas income?  Will it weaken my position if my mortgage application states the condo as my "primary residence" given this is the only piece of US realestate I own.  I can apply as a vacation home, but will pay a slightly higher rate if this gives me a better chance to fight MT state tax liability.  Thanks Nathan

Answer
Dear Nathan,

Purchase of vacation home in Montana will not trigger residency. Having a primary residency indeed will weaken your position.
The rules for residency requirements in Montana are unambiguous:

You are a resident of Montana for individual income tax purposes if you live in Montana or if you maintain a permanent home in Montana. A permanent home in Montana means a dwelling place you habitually use as your home, whether or not you own it and whether or not you may someday leave.

It is worthwhile to apply for mortgage for a vacation home to avoid the risk of paying state tax on worldwide income.

Please also see http://www.taxesforexpats.com/articles/expat-tax-rules/state-taxes-expat-tax-ret for the overview of expat state tax position.

Hope this helps,
I.J.Zemelman

Tax Law (Questions About Taxes)

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IJ Zemelman, EA MBA

Expertise

I am an IRS-authorized EA and principal of a Tax Preparation firm focusing on U.S. Expatriates. We specialize in all tax issues faced by American citizens living abroad - such as foreign earned income, tax treaties, foreign spouse, etc. Visit our website - www.TaxesForExpats.com - for more information.

Experience

18 years professional tax experience, 12 with expatriate taxes.

Publications
Expatriate tax information on www.TaxesForExpats.com

Education/Credentials
MBA from Zicklin School Of Business, IRS Enrolled Agent

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