VIEWPOINT: Snowbirds Beware: The Ins & Outs of Nonresident Income & Estate Tax

It’s that time of year again, when snowbirds break out their suitcases and make plans to flee the Empire State for warmer weather. Anyone who has experienced New York winters can appreciate the desire to avoid the back-breaking shoveling, frozen eyelashes, and wind-burned cheeks of a typical New York January and February. While weather is certainly one incentive to fly away to southern climes, many snowbirds head south for an additional reason — to establish or maintain residency in another state for tax purposes. This article provides an overview of New York income and estate taxation rules for nonresidents. While changes in the law have somewhat reduced the impact of New York’s estate tax, the opportunity to further reduce New York income taxes remains a strong motivator to establish residency outside the state.

Personal Income Taxation of Nonresidents

New York residents are taxed by the state on all income from all sources, with the highest tax rate being 10.9 percent. In contrast, nonresidents are only subject to personal income tax on income from New York sources. New York source income is defined as the sum of the income, gain, losses, and deductions derived from or connected with New York sources, for example, income from owning New York real or tangible property, or from services or business carried on within the state. An individual who can establish legal residency outside New York, however, will only be obligated to report and pay tax on income actually generated in the Empire State. Whether a taxpayer is determined to be a New York resident may have a significant impact on the assets that are taxed and the tax that may be owed. a.​ Defining Residency New York’s tax laws are aimed at thwarting wealthy people who maintain homes in New York and spend the majority of their time here, but still claim non-residency status. New York’s Tax Law provides for two separate analyses to determine residency — domicile and statutory residence. A taxpayer determined to be domiciled in New York will pay state tax on all income regardless of the source. A taxpayer not domiciled in New York will still be taxed as a New York domiciliary if he or she is determined to be a “statutory resident.” Only if taxpayers can establish by clear and convincing evidence that they are neither domiciled in New York nor a statutory resident will they be taxed only on income actually generated in this state, likely saving a significant amount of money. i)​ Domicile While in everyday language “residence” and “domicile” are used interchangeably, they have different legal meanings. “Domicile” is the place individuals intends to be their permanent home — where they intend to return after being away. A person can have several residences at a time, but only one domicile. New York’s Tax Department offers five primary factors to determine domicile: (1) Home: use and maintenance of a New York residence; (2) Active Business Involvement: employment relating to compensation derived in the year under review; (3) Time: where the individual spent time during the year; (4) “Near and Dear”: the location of items that have significant sentimental or other value to the individual; and (5) Family Connections: a bond that draws a person back to a location, such as where minor children attend school. Other factors state auditors may consider include addresses on financial records, location and registration of automobiles, voter registration, and location of safe deposit boxes. There are also “non-factors” that will not be considered, such as where the taxpayer’s will is probated, location of bank accounts, charitable contributions to organizations within the state, and volunteering for nonprofit organizations. ii)​ Statutory Resident A taxpayer not domiciled in New York may still be subject to taxation as a resident if the taxpayer: (1) maintains a permanent place of abode in New York; and (2) spends more than 183 days in the state. This test is what often trips up taxpayers who keep a New York house after moving to a warmer and more tax-friendly state, compelling them to carefully keep track of the number of days they spend in New York. New York’s Tax Law considers “permanent place of abode” to mean a residence taxpayers maintain, whether they own it or not, that is suitable for year-round use. The definition generally includes a dwelling place owned or leased by the taxpayer’s spouse, but not a camp or cottage that is suitable and used solely for vacations. A life estate interest in a New York home may also be considered a permanent place of abode under New York tax laws. If the taxpayer seeking non-resident status is found to have a permanent place of abode in New York, the next step is to determine whether the individual spent more than 183 days in the state during the relevant tax year. Importantly, New York courts have held that for this purpose, “day” is defined as any part of a day, not 24 hours. A taxpayer who fails to satisfy both tests will be considered a statutory resident and will be taxed by New York on all sources of income for the entire year, just like a full-time resident, even if the taxpayer’s domicile changed during the year. By contrast, a taxpayer who does not have a New York domicile and is not a statutory resident will only pay income tax to New York on New York source income.

Estate Tax for Nonresidents

Both the federal government and New York State impose tax on the transfer of assets owned by a deceased person at the time of his/her death if the value of those assets exceeds certain thresholds. Over the last decade, substantial changes have been made to the estate-tax exclusion amount on both the federal and state levels. As a result of the “One Big Beautiful Bill Act”, the federal estate-tax exclusion permanently increased this year to $15 million, indexed for inflation, for decedents dying and gifts made after Dec. 31, 2025. The New York estate-tax exclusion amount as of Jan. 1, 2025 is $7,160,000. While these changes mean that fewer New Yorkers are concerned about estate tax at death, wealthier snowbirds who maintain property in the Empire State may still face filing requirements and nonresident estate tax. Under Section 952(a) of New York’s Tax Law, estate tax applies to the estate of any “individual who at his or her death was a resident of New York State.” Unlike the rules governing income tax, however, the estate-tax regulations do not define “resident.” Notwithstanding, courts faced with these issues will consider many of the same facts and circumstances. An analysis of the type of assets owned by a nonresident is necessary to determine whether an estate-tax return must be filed. The determination is based on whether the decedent’s estate includes real or tangible personal property located in the state and, under Tax Law § 971 (a)(2), whether the federal gross estate plus includible taxable gifts of real or tangible personal property located in the state plus intangible personal property used in a business, trade, or profession carried on in New York while the individual was a resident exceeds the New York State basic exclusion amount. “Real property” for purposes of this analysis is defined as an interest in land, including buildings and other improvements, located in the state. “Tangible personal property” is personal property that can be physically touched and moved, such as cars, artwork, or jewelry. “Intangible property” includes money, credits, and securities within the state, except to the extent they are part of a business, trade or profession carried on in New York. Nonresidents wishing to avoid potential estate tax would be well advised to ensure that they do not own real or tangible personal property in New York. Property with New York ties that is categorized as intangible rather than real or tangible is not subject to New York estate tax. A typical example of an intangible asset located in New York but treated as being sited outside the state for estate-tax purposes is a personal bank account maintained in New York by a Florida resident. New York’s Constitution prohibits the state from imposing estate tax on a nonresident’s intangible property even if it is located in the state. Nonresident taxpayers seeking to avoid having to file a New York estate-tax return and potentially being taxed should consider changing the ownership of real or tangible property by creating a business entity to own such assets, Interests in a limited liability company constitute an intangible asset, so real estate held in an LLC is not includible in the nonresident’s New York estate. Similarly, stock in a subchapter S corporation holding New York real property is considered intangible, provided the corporation is engaged in business activity. Whether it makes sense to create an entity to own real or tangible property is specific to an individual taxpayer and includes considerations such as the type and value of the New York assets involved, the taxpayer’s overall net worth, and the ultimate beneficiaries of the estate. a)​ Filing Requirements and Calculation of Tax Prior to April 2014, executors of estates of nonresidents with New York real and tangible property were required to file and pay tax without the benefit of the estate-tax exclusion amount. Now, however, if the value of the total estate is less than or equal to the New York exclusion amount (currently $7,160,000), no filing is required and no tax is due. On the other hand, if the value of the federal gross estate exceeds the New York exclusion and the estate holds New York real or tangible property, the executor must file a return. New York estate tax will be due if the value of the New York situs property exceeds the exclusion. As a warning, the current rules include an add-back requirement for certain gifts made within three years of death. Regardless of the level of wealth and income, snowbirds are advised to consider their tax plans before packing their bags. Taxpayers may want to deploy strategies such as transferring or restructuring New York assets, reducing New York source income and implementing snowbird calendars. With forethought, clients can steer clear of the snowbanks of New York taxation.      

---

Jaime J. Hunsicker is a partner in the Elder Law & Special Needs, Tax, Family Business Succession Planning and Trusts & Estates Practices of Hancock Estabrook, LLP. Contact her at: jhunsicker@hancocklaw.com.  Author’s note: Marion Hancock Fish, also a partner at Hancock Estabrook, co-authored an earlier version of this article.