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Homestead Exemptions

Ask the Real Estate Lawyer: Real Estate Law Q&A

REM #LAW 635

By Ilyce R. Glink and Samuel J. Tamkin

Summary: A couple has two properties, one in California and one in Michigan. Can they declare two homestead exemptions, one for each property?

Q: My wife and I are retired and own two homes, one in California and one in Michigan. We had heard that it's possible to have my wife homestead one property and for me to homestead the other.
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Is this true, and if so, are there limitations or rules that must be followed?

A: While technically a husband and wife might be able to homestead two separate homes, it's unlikely to happen for most people. There are a big set of hurdles to get over in order for that scenario to fall into place.

Let's start at the top: To maintain a primary residence in a particular state, you generally need to live in that state over six months of the year and the home you own there must be your primary residence.

When a person has a primary residence, they generally work and live in the same general area, register to vote in that community, obtain a driver's license in that state and maintain significant contacts with that community to establish a primary residence.

For your wife to have one primary residence and you to have another means you probably would be spending some time separated and your finances would have to reflect your true living situation.

You would have to file a state tax return in one state and your wife would have to file in the other and you might have to file separate federal tax returns. All of your mail would have to be sent to one state while all of your wife's mail would have to be sent to the other.

In a sense, each of you would be independent people with separate financial lives and homes. One with a home in California and one in Michigan.

Individual states tend to frown upon having an individual claim residency in their state solely for purposes of obtaining a tax advantage - and this is a particularly big red flag when the individual is one-half of a married couple. It's one thing to move from one state to another and call your new state home, but quite another to claim you are married and then state that you each have different residences.

State tax departments have concluded that most people making such claims are looking to "divide and conquer" - in other words, they're looking for tax benefits.

In Michigan, state residents pay a considerable amount less in property taxes than do state residents. However, if a person takes advantage of the claim that they are a resident of a particular state and there are questionable issues relating to the claim, the state may contest the residency of that individual.

Is it worth taking such a big risk for the few hundred dollars you'll save with a second homestead exemption? You may want to rethink this strategy with your tax preparer, an enrolled agent or a tax attorney.

 

Samuel J. Tamkin is a Chicago-based real estate attorney. Ilyce R. Glink’s latest book is 50 Simple Steps You Can Take To Sell Your Home Faster and For More Money In Any Market. If you have questions for them, write: Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact them through Ilyce’s website www.thinkglink.com

 

 

 

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