Owners who split their time equally between two or more properties face tax, legal and financial challenges
In spring 2020, while stuck at home in Leesburg, Va., outside of Washington, D.C., Kent Rounds, a cybersecurity executive in his 50s, suffered a bout of cabin fever so severe he decided to fulfill a long-held dream of splitting his time equally between the East Coast and a place in the Teton Valley region, on the Wyoming/Idaho border. In February, Mr. Rounds and his wife, Simone Rounds, who is in her 30s and also works in cybersecurity, closed on a $2.5 million house in Driggs, Idaho, purchased sight unseen. They have already spent six months in the home this year.
The decision to split their time between two homes also came with some challenges rarely encountered by people who spend only weekends and the occasional vacation week at a second home. The couple had to figure out how to ship cars halfway across the country, find a second pediatrician for their 11-month-old daughter, and get their three Maltese dogs back and forth between the two homes. Since airlines allow passengers to travel with only one pet at a time, the pups haven’t made the trip, Mr. Rounds said. “They’re currently bouncing around between my family, friends and a nanny,” he said.
Welcome to the “co-primary home” lifestyle, where time is equally split between two or more homes, rendering the concept of a primary home obsolete. For the uber rich, this lifestyle has long been a norm, but the proliferation of remote work due to the pandemic has made it a viable lifestyle choice for second-home owners who are less wealthy.
The freedom to live and work from whichever of your properties you want comes with a host of challenges, whether it is finding a local doctor at each location, remembering which house has which clothes, deciding where to send your children to school or determining which of your residences is your primary.
That last one is both confusing and crucial. Taxpayers can have only one domicile, regardless of how many homes they own, according to Joan Crain, senior director and global wealth strategist at BNY Mellon Wealth Management. Where their primary residence is located can have significant implications for the homeowner’s tax bill.
Generally, most states consider a domicile to be a primary residence and the place where the taxpayer spends the majority of their time, she said. When a taxpayer spends equal time in multiple homes, it can be a gray area. When the domicile isn’t clear cut, “state tax auditors will look at other factors, like where is your business address?” she said. “Where do your credit-card bills go? Where are your doctors?”
But what if the answer to those questions is “both”?
Designating a primary residence is important to avoid having all of your income taxed by multiple states, said Janet Hagy, president of CPA firm Hagy & Associates in Austin, Texas. “You prevent that by keeping track of the number of days you’re in a particular state,” she said.
Someone who crosses state lines for work typically will get a tax credit in their home state for nonresident income taxes paid to another state. Some states tax the income of nonresidents who spend a certain number of days physically working in the state, said Taryn Goldstein, Florida state and local tax leader at accounting firm BDO USA.
A number of states have reciprocity agreements, including New Jersey and Pennsylvania. For years, some states, particularly in the Northeast, have taxed individuals who physically worked in the state but lived elsewhere to make up for declining tax revenue. During Covid, some waived that rule, but the issue is evolving. “Since a lot of people have made their new telecommuting places permanent,” Ms. Goldstein said, states “are starting to tax those people.”
Determining which of your homes is your primary is important for other reasons. Certain states, including Texas and Florida, give taxpayers who own their primary home there a homestead exemption on their local real-estate taxes. In some states, a primary home is also protected by limits on annual property tax increases, Ms. Hagy said. There is also a capital gains exemption associated with selling a primary residence; sellers can exclude gains up to $250,000 if single and $500,000 if married.
K. Duane Brelsford, 63, and his wife, Terri Brelsford, 57, consider Pullman, Wash., to be their primary residence for tax purposes. In fact, it is the place where they spend the least amount of time. Mr. Brelsford said he and his wife migrate between a home in Lake Coeur d’Alene, Idaho, in the summer and a home in Cabo San Lucas, Mexico, in the winter. They take trips to Pullman every four to six weeks so that Mr. Brelsford can check in at the office.
“I don’t need to be there as often,” said Mr. Brelsford. However, he claims his Washington home as his primary residence because Pullman is where his real-estate development businesses are based. Mr. Brelsford also grew up in Pullman, went to school there and he and his wife raised their two daughters there.
Another logistical challenge of co-primary living is figuring out where to get mail delivered. This might seem trivial until an important legal document or paper bill arrives at the home you’re not in.
Mr. Brelsford, and many others living in co-primary homes, solves part of this problem by paying all his bills online and through automatic bill pay. He has everything else forwarded to his home in Pullman, where he collects it during his visits.
Tom Newgarden, 54, and his fiancée Erica Wind, 36, who work in the insurance industry, get mail at their four homes—one in New York City, a condo purchased for $1.35 million in May 2020 in Asbury Park, N.J., a vacation home in Charleston, S.C., they bought in July for $660,000, and an apartment they rent in Philadelphia near Ms. Wind’s office. Now that the world is slowly reopening, the couple plan to spend several days of each week in New Jersey and Philadelphia.
Mr. Newgarden said he has bills associated with each home sent to the corresponding address, which helps him track expenses for each property. To avoid missing anything important or time sensitive, he signed up for a service from the U.S. Postal Service that sends him a daily email showing him a picture of what’s been delivered. Mr. Newgarden said that going forward, New Jersey will be their primary residence, not only because they’ll spend the most time there, but because it feels “more like home” than anywhere else.
One of the less legally fraught, but no less annoying challenges of living in multiple homes is keeping track of where your stuff is.
Josh Hepburn, 35, and his partner, Lynn Odvody, 60, a custom home builder, have duplicate clothing, dog beds, a full set of tools, and Breville Barista Express coffee makers at their homes in San Francisco and South Lake Tahoe, Calif., which they bought for $700,000 in February 2020. A month after closing, Covid hit and the couple set up a home office in Tahoe for Mr. Hepburn, who works for a smart-home startup. He has a computer monitor in both places and brings his laptop when he travels back and forth. The couple spend roughly 40% of their time in Tahoe, returning to San Francisco when Mr. Odvody needs to be on a job site.
Mortgage executive Charles Nay, 58, and his wife, Carrie Nay, 53, a stay-at-home mom to their 12-year-old daughter, have been shuttling back and forth between their home in Medina, Wash., which they bought for $1.715 million in April 2013, and a cabin in Cle Elum, about 90 miles away, which they bought in September 2020 for $1.35 million. They keep bins by the doors of both homes. “When we’re ready to leave, we grab it and go,” he said. The family dog, a Cavachon named Harlow, goes in the car back and forth with them and recognizes the exit for the cabin. “By the time we get to the gate, she’s like trying to jump out the window,” he said.
The Roundses keep cars at each of their homes—a truck and a Porsche Cayenne in Driggs, Idaho, and another Porsche Cayenne in Virginia. Mr. Rounds said although Virginia remains his primary residence for tax purposes, he got an Idaho driver’s license, which made it easier for him to get permits for hunting and fishing.
Having a driver’s license outside of your domicile state could raise a red flag, said Ms. Hagy, by providing both states with evidence to make a case that a taxpayer is primarily domiciled there.
As for car insurance, premiums are based on where the vehicle is garaged, and cost varies widely based on the perceived risk profile of that location, said Aaron Gordon, a vice president at Gordon Companies, a New York-based insurance brokerage firm. Typically, a car is registered to a person’s home address, although that gets murky when there are two (or more) homes in play. For someone truly splitting their time between two homes, he said, there is every reason to garage the car in the less risky location.
The bigger-ticket concern is homeowner’s insurance, Mr. Gordon said.
Insuring a second home is more expensive than a primary residence because, in the eyes of the insurer, the homeowner may be absent for long stretches of time, he said. If a leak formed, the homeowner might not know for several weeks.
However, Mr. Gordon said insurance companies are increasingly permitting clients to designate homes as “dual primary” residences, in response to a greater number of people who split their time more evenly between two homes. “The ability for people to check up on things is possible,” he said, citing the shift to remote work. “Before, you had to do this crazy thing called, ‘Go to an office.’ ”
One set of factors that tax authorities consider when determining which home is the primary, says Ms. Crain, is related to where the person has deep, lasting connections, such as their friends, extended family, doctor, vet and social networks. But people who have co-primary homes often have all those things in two or more locations.
The Roundses have a pediatrician in both Idaho and Virginia, although they have primary doctors for themselves only in Virginia. Mr. Rounds said his insurance covers both pediatricians, so long as they are in network.
Mr. Newgarden, who has seen doctors in New York and New Jersey, said he has a high-deductible plan that allows him to see specialists wherever and whenever he needs to. It allows for flexibility, although he said he’s essentially paying for everything as he goes. His fiancée, Ms. Wind, doesn’t have a primary care physician, but the couple wasted no time lining up vets for their two toy Australian shepherds, named Bear Bear and Teddy, in each locale. “It’s good to be prepared for emergencies,” Mr. Newgarden said.
When family and friend connections are also located near multiple homes, the issue of a primary home gets murkier.
Mr. Brelsford said that when he and his wife are in Pullman, he hangs out with high school and college friends, and he belongs to the Golf Club at Black Rock in Idaho. He has an entirely different social network in Cabo, where his mother also built a home.
Mr. Nay said he was initially concerned his family would be bored at their mountain cabin without a social network or nearby town. But the neighbors in their private community, called Tumble Creek, are friendly and several friends from Medina have decided to build homes there. On a recent weekend, several couples from Medina, including the Nays, had drinks at the clubhouse at Tumble Creek, followed by dinner at a private home.
Recently, as employees and students are being called back to work and school, co-primary families are adjusting again.
The Nays lived at Tumble Creek full time while their 12-year-old daughter was learning remotely, but in February 2021, when school resumed in-person three days a week, they slept in Medina on school nights and would then “scoot back up to the mountain,” said Mr. Nay. This year, the cabin is for weekends and holidays.