Overview

Owning multiple homes — a primary residence plus a vacation home, seasonal property, or rental — raises two separate but related tax questions: which state treats you as a resident for income tax purposes, and how each property is taxed locally (property tax, local levies, tourist taxes). The answers shape your state income tax filings, eligibility for homestead or primary-residence exemptions, and potential audit exposure.

This article explains the common legal tests states use, how multistate filing typically works, practical documentation steps, and planning strategies to reduce tax surprises. It draws on IRS guidance and state practice as of 2025 and includes links to related FinHelp articles for deeper reading.

How states decide residency (domicile vs. statutory residency)

  • Domicile: Your legal home — the state you intend to return to and make your permanent residence. Domicile focuses on intent, long-term ties (driver’s license, voter registration, where you keep primary possessions), and can be hard to change without clear evidence.
  • Statutory resident tests: Many states apply objective day-count tests (commonly 183 days or more) or special statutory rules. For example, New York uses a combination of residing in a “permanent place of abode” and spending more than 183 days in the state to trigger statutory residency.
  • Hybrid approaches: Some states weigh both intent and objective tests. The precise definition varies by state; always check the state tax department guidance or consult a CPA.

Sources: IRS Publication 519 (U.S. Tax Guide for Aliens) explains residency concepts at the federal level, and state statutes and tax departments publish their rules. For definitions and verification, see our FinHelp article: How the IRS Defines and Verifies Tax Residency.

Income tax implications when you claim multiple houses

  • Primary-residence state: If you are domiciled in a state that taxes income, you generally report all worldwide income on that state return.
  • Nonresident state tax: If you earn income sourced to another state (wages, rental income, business income from a property there), that state can require a nonresident return for the income earned in-state. Rental income from a vacation home is a classic example.
  • Credits and avoidance of double taxation: Most states offer a credit for taxes paid to another state on the same income, but rules and limitations differ. For wage income, reciprocal agreements may apply between certain states.

Example: If you live and are domiciled in Florida (no state income tax) but own a rental in New York, you must file a New York nonresident return to report rental income earned in New York and pay New York tax on that income.

Property tax and homestead treatment

  • Property taxes are assessed where the property sits. Rates and assessment methods vary widely by county and state.
  • Homestead or primary-residence exemptions: Many states allow reduced assessment or a tax credit for a property that qualifies as your primary residence — but you typically can claim this on only one home. States often require proof such as your driver’s license, voter registration, or utility bills.

See FinHelp’s primer on homestead protections: Homestead Exemptions and Property Protection.

Capital gains and primary residence rules (federal relevance)

At the federal level, Internal Revenue Code Section 121 lets qualifying homeowners exclude up to $250,000 of gain ($500,000 for married filing jointly) when they sell a primary home — provided they owned and used the home as their primary residence for two of the five years before the sale. If you split time between properties, only the sale of the home you qualify as a primary residence for the required period can use this exclusion. See IRS Publication 523: Sale of Your Home (irs.gov).

Multistate filing practicalities and audits

  • File a resident return in your domicile state (if it taxes income).
  • File nonresident/part-year returns in states where you earned income or sold property.
  • Keep careful records of income sourced to each state to allocate income properly.

Audits: States scrutinize situations where taxpayers appear to claim residency in low-tax states while maintaining substantial ties to high-tax states. Read FinHelp’s guide to audit risk: State Tax Residency Audits.

Documentation checklist — what to keep and why

To support a claim of primary residence and defend against audits, maintain a contemporaneous, organized record for at least three to five years:

  • Calendar of days spent in each state (day-count logs or smartphone location history)
  • Driver’s license and voter registration (state and effective dates)
  • Vehicle registrations and insurance addresses
  • Deeds, mortgage statements, utility bills, and homeowner insurance policies for each property
  • Employment or business location documents
  • Tax returns (federal and state), W-2s, 1099s showing state withholding
  • Mail forwarding, bank statements, and club or medical records that show where you live

Pro tip: Many taxpayers underestimate how compelling small documents (a local gym membership, medical records) can be in establishing domicile.

Common scenarios and practical examples

  • Snowbird: Retirees who spend winters in Florida and summers in Minnesota often declare Florida domicile to avoid state income tax. To make the change, they obtain a Florida driver’s license, register to vote in Florida, and tie major financial accounts to Florida addresses — and keep a day-count log.
  • High-income mover: A professional moves from California to Nevada and claims Nevada domicile. California will look at where the person kept a permanent place of abode, business ties, and how many days were spent in California; legal counsel and clear record-keeping are crucial.
  • Vacation home rented seasonally: If you rent a vacation home for part of the year, treat that activity as business income in the property’s state and file as required. Consult IRS rules on passive activity and rental reporting.

These examples are illustrative; outcomes depend on facts and state law.

Strategies to reduce tax risk (best practices)

  1. Decide and document domicile clearly if you move states — change your driver’s license, voter registration, primary address for tax and banking, and record the dates of those changes.
  2. Keep a contemporaneous calendar of presence in each state; most disputes turn on day counts and lifestyle ties.
  3. Limit contradictory ties: avoid maintaining a contested set of local records (e.g., a homeowner in State A keeping a vehicle registered there while claiming domicile in State B without strong supporting evidence).
  4. Use professional help: CPAs and tax attorneys with multistate experience can prepare pre-move checklists and, if needed, defend residency positions during audits.
  5. Coordinate sales and 1031 exchanges correctly: if you sell an investment property, consider IRC Section 1031 like-kind exchanges for deferring gains (check current IRS rules and consult your tax advisor).

Common mistakes and misconceptions

  • Believing you can easily claim two primary residences. Most states allow only one homestead exemption and will challenge dual domiciles.
  • Ignoring state withholding on rental or wage income in the property’s state.
  • Failing to report rental income from a second home — even short-term rentals are taxable and often trigger local lodging taxes.
  • Relying on informal “half-time” rules: equal time split can still leave you taxable in both states under state-specific tests.

FAQs (short answers)

  • How do I choose which home to claim as primary residence? Base it on where you have strongest ties and where you intend to return. Documentation and consistent actions (license, voter reg, tax filings) matter more than verbal claims.
  • Will selling my second home trigger capital gains tax? Yes — unless it qualifies under the primary residence exclusion. Selling a rental or investment property generally triggers taxable gain unless deferred under a like-kind exchange or offset by basis increases and allowable deductions.
  • Can I avoid taxes by moving to a no-income-tax state? Possibly, but states will examine your intent and ties — a sudden move without substantive changes in daily life can attract audit risk.

Action checklist before you change residency or buy a second home

  • Get a professional multistate tax consultation if you have taxable income across states.
  • Maintain a day-count calendar and supporting documents from day one.
  • Update your driver’s license, voter registration, and vehicle registration promptly when you move.
  • Review homestead and local property exemptions before claiming them.

Professional disclaimer

This content is educational and not a substitute for personalized tax, legal, or financial advice. State residency and taxation depend on facts and specific state laws; consult a licensed CPA or tax attorney for decisions affecting your tax liabilities.

Authoritative sources and further reading

Related FinHelp articles:

By carefully documenting your intent, tracking days in each state, and coordinating filings with a qualified advisor, you can hold a second home without undue tax surprises. If your situation involves significant assets or high income, a preemptive multistate tax review is strongly recommended.