23 Apr Will I owe this tax if I live in another country?

Q. I am a U.S. citizen but I plan to relocate to my home country for a few years. I do not own a home in New Jersey and won’t have any income in the state. My bank and brokerage accounts will have my cousin’s New Jersey address., which is the address on my driver’s licence. Will I owe capital gains from sale of my primary home in my home country?
— Planning

A. It sounds like even though you’re a citizen, you were born in another country.

It also sounds like you wish to maintain your U.S. citizenship but temporarily cut your relationship to the state of New Jersey.

What we have here is a problem with “domicile” and “residency,” said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

He noted the definition of domicile from Black’s Law Dictionary: “That place where a man has his true, fixed, and permanent home and principal establishment, and to which whenever he is absent, he has the intention of returning. The permanent residence of a person or the place to which he intends to return even though he may actually reside elsewhere.”

Residency means where you currently live, Kiely said.

“Since you want to maintain a New Jersey address for your bank and brokerage accounts rather than use your intended overseas address and you want to keep your New Jersey driver’s license with a New Jersey address, it indicates your intention to ultimately return to New Jersey your true domicile,” he said.

A New Jersey driver’s license is more than the right to operate a motor vehicle, Kiely said.

“It is a legal form of identification,” he said. “Why would someone wish to keep a New Jersey form of identification? It’s probably because they intend to return sometime in the future.”

Because you are a citizen of the U.S., you are required to file a U.S. income tax return and report your worldwide income on it, Kiely said.

“If you purchase a home in another country to live in it for at least 24 months out of 60 months, you will not have to pay capital gains tax on up to $250,000 of gain or $500,000 if married filing jointly,” Kiely said.

New Jersey follows the federal rules for taxation of any gain on your principal residence, so even if New Jersey is your state of domicile, you won’t have to pay New Jersey tax on a home sale.

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This story was originally published on April 23, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.