Steerpike

It's looking more and more likely that I'll be spending significant time in Phoenix, AZ over the next few years - a great job has presented itself, and I find myself enjoying the place (despite all my pre-conceptions to the contrary!). However, I love the Bay Area, and the job is such that I can probably spend 3 weeks working in AZ, and 2 weeks working in CA for the foreseeable future - company has offices in both locations and will pay for my travel - so no reason to sell in CA.

Given the real-estate situation in Phoenix, I think I can afford to buy a second residence here (just a simple condo) - so that would be two mortgages, and income earned in two states. I'm assuming I'd be able to deduct both mortgages as primary residences, and I'd pay taxes in both states (but not significantly more than I'd pay in either state if I were there full-time). Are there any serious 'gotchas' I need to be aware of, in terms of living, earning and owning property in two states? Obviously, I will consult a tax dude before making any significant steps, but I'd like some initial pointers from anyone who's 'been there/done that' ... thanks!

chartreuse

No clue, I'm afraid, but I won't let that stop me from guessing.

One potential gotcha that seems likely to me is that while each state might allow you to deduct the mortgage, the feds might make you pick one only as primary.

Another is that you'll be paying full property taxes etc in both states, even when the house is empty, so it may end up being more than you expect.

The third is that this all may be moot, depending on company payroll policy and three sets of tax laws. It might be possible to do a bit of tax shopping here. But that's getting v. complicated.

Toontje

Why a dude?

http://britishexpats.com/forum/member.php?u=67273

http://britishexpats.com/forum/showthread.php?t=584122

Jerseygirl

Can't help you with the mortgage but we claim for council tax on 2 properties.

Tarkak9

def talk to the likes of who Toon mentions.

It most likely depends on which you declare as your primary residence etc and how much time of the year you spend there etc. Ofcourse, cap gains down the road is something to think about too. Other things to think about is whether or not its advantageous or not to put one or the other in a trust or living trust etc. Due to the total length of time you're thinking about staying in the AZ one, you might not be able to claim it as a holiday home w/o lenders getting snotty about it (ie them treating it as an investment property) and technically doing a wee bit of loan fraud. Def check with your lender about it too. Ofcourse, an investment prop allows a whole sort of deductions too!

Look and compare your tax liability at each state level.

Steerpike

it would be something like 60/40 AZ/CA, I believe.

Last time I looked into it (not recently!), you were allowed to have two primary residences (that is, not investment properties) from a tax deduction perspective, and I would not have expected any push-back from the lenders since it would not be an investment property - it would truly be a second home. Loan qualification is something I've looked into already; even though I share the loan on my current home, they ding me for the full payment when calculating my loan-to-value ratio; they also assume I'm using my line of credit, which has a zero balance. So I'm only able to afford a pretty modest condo, but that's fine.

fatbrit

FIL was down from the hills the other day looking at buying some more investment properties. Okay so he's a sort of Oklahoman Rachman and they weren't in the best areas of town.....but they weren't a no-go zone, either. Bank owned, 4 bed, 2 bath for 50k. Needed a good clean, flooring, coat of paint and a new air conditioner. But that was it.

Steerpike

Was talking to a guy at the bar in a restaurant Saturday; he was moving into town to buy up investments just as you describe - $45k cash for bank owned homes that he said they were spending up to $10k on 'rehab' (only if needed), then turning around and renting them out for $900/month to 'solid families'.

Personally, right now I'm renting a 2 bed, 2 bath condo (1200 sq. ft., tall ceilings, etc - very nice!) in North Scottsdale (Shea/101) in a very nice development, and units are going for $180k but with at least one bank-owned going for $125k. The area is really nice - palm-tree/cactus-lined avenues and gorgeous homes all around - and only 10 minutes from the office, and close to several good places to hang out. If I could buy a unit in this development tomorrow for $140k I'd do it!

$140k-30k down=$110k loan; 30 yr, 5%=$590/month. Add HOA + tax of $300, that's !$900/month; less ~20% tax deduction=~$700 net/month. So that's about $8,400 / yr cost - to secure a job paying 'very well', and having a ball at the same time. I COULD just rent a place for a similar outlay, and reduce my risk significantly; if I buy a place and then lose this job, I'm stuck with two properties and no income; and if prices go down/stay the same, I won't be able to unload the property. Renting is definitely the safer bet ... but I've been owning property since 1984 and it has served me well, so renting seems very alien!

Noorah101

The only helpful thing I can add is that you don't have to pay 2 State taxes. You can pay AZ state tax, and then just file a CA state tax return showing you paid AZ state taxes already.

Rene

chartreuse

Could he do it the other way around, if he chose? Not that I'd imagine that anybody would want to pay CA taxes, but I wonder if, in cases like Steerpike's, there's room to choose your state for tax purposes. That's what I was getting at with my tax shopping comment.

Bob

Income tax filed for both states if your spending significant amount of time in both...shouldn't be that bad to do, but you might want an accountant to go over it for the first year at least so see what else you might be able to claim as expenses...

Also, medical insurance, presumably your registered for up in the Bay area, but find out what the deal is for spending long term time in another state.

Noorah101

Good question. Our primary residence is AZ, but my husband works so much in CA that he is obligated to file a state tax return there. However, since we pay AZ tax, he is exempt from paying the CA state tax. We only rent in CA, but we own in AZ, so AZ is our primary residence.

Rene

Steerpike

Well, here we are, 6 months later! I ended up buying a place here in Scottsdale; and I'm spending about 95% of my time here. I've asked my company to stop withholding CA tax as of Jan 1, and start withholding AZ tax. I'm keeping the house in CA and will hopefully get home about once a month for at least an extended weekend (more in the summer when it's HOT here!). My g/f has been coming down and likes it here too.

I've spoken to a tax guy, and he says I should register my car here and get an AZ drivers license, and register to vote - all steps to 'demonstrate' or 'prove' residency. He also said that, if my trips to CA are for specific purposes (a meeting, a project, etc) then my trips to CA are no different from my trips to any other state made for business purposes. A 'regular' trip may be more problematic - eg, fly home every other week ...

The tax advantages are not that great (certainly not worth going through hoops or risking audit hassles for) but apparently, unless I can demonstrate this as my primary residence I won't get favorable rates when I try to refinance the loan (I used a Line Of Credit to buy the place, with a plan to get conventional financing after-the-fact). Since my LOC is currently running around 2.5%, I'm not exactly rushing to deal with this but still ...

Turns out I'm loving Arizona and am looking forward to spending the next few years here. Things have changed at work and I could probably now re-establish myself in the Bay Area, but I'm choosing to stay here as I want to experience it some more. The city of Phoenix itself (downtown/center) sucks but the suburbs are really nice, and there are fabulous places to visit all around for day-trips and weekends. The weather, outside of June/July/Aug/Sept, is 'perfect', and the scenery is quite spectacular. The people are great - easy going, no religious BS, and no stupid liquor laws like "can't buy beer on Sundays" or whatever. I love the Bay Area, but - after 25 years it's nice to see something different, so this is a great opportunity. I would highly recommend everyone give Arizona a look if they are considering other places to live. The economy is pretty dicey, I believe ... but if you can find a job, I think it's got a whole lot going for it - more than for 90% of the rest of the country!

Bob

I looked at it too, but it was a case of 3 shops out there, none looking great, it's now down to 1.5 outfits...giving Vegas more game shops, weirdly enough...could have been interesting but way to isolated of an area to want to make the move if ending up getting bounced I'd be some what borked....more work in Utah, which is also a little odd of a hub.

Funny how some of the best places to be can have the least jobs going.

AmerLisa

Hope he's got a spare 6 months to wait around....Or are the banks moving faster down in Arizona?