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Has anyone had occasion to look into the above Assisted Living In Nj issues?
QUESTION: A husband and wife owned a home in New York, probably as
tenants in common. The wife had a stroke and went into a
nursing home in New Jersey. The husband remained at home in
New York. The husband recently died. The wife (and the
husband's estate or beneficiaries if they owned the home as
tenants in common) may sell the home in New York.
Issue 1 -- Section 121 Exclusion for Sale of Principal
Residence
Am I correct in reading the special rule in Section
121(d)(7) to mean that, if wife sells the home within 4
years from when she went into the nursing home, she will
still qualify for the $250,000 exclusion?
Issue 2 -- Wife's domicile for estate tax purposes
The last time we looked at this issue, the cases went both
ways, but it seemed that the better view was that going into
a nursing home does not change one's domicile, so that the
wife is still a New York domiciliary, and would probably
still be a New York domiciliary even if she were to sell her
home in New York.
Have there been any recent developments which would change
this conclusion?
Issue 3 -- Wife's residence for state income tax purposes
It would seem that the key factor would be whether the
nursing home bed is considered a "permanent" place of abode.
If the nursing home bed is considered a "permanent" place of
abode, it would seem that the wife should now be a New York
domiciliary and a New Jersey statutory resident, and after
she sells her home she should be an income tax resident of
only New Jersey.
But if the nursing home bed is not considered a "permanent"
place of above, then it would seem that the wife should be
taxable in New York and not in New Jersey regardless of
whether she sells her home. The exception for domiciliaries
not present for 30 days requires not only not having a
permanent place of abode in the state, but also that the
taxpayer have a permanent place of abode outside the state.
Has anyone had occasion to look into the above issues?
ANSWER: I'm only a lay reader but I did read Sec 121 some time ago
for planning re my mother and read it the same way you do as
to preserving one's domocile while in a qualified care
facility for elgibility purposes under 2 out of 5year
rules. In fact I read it as to say she was still there in a
legal context and there was no limit as to how long the
nursing facility stay might be in context of 121(d)7. I
didn't read a 4 year limit into it.
Whether the IRS is bound by state law depends upon the issue
and who you ask.
The only wrinkle which may be irrelevant to the above,
especially if your client is not recieving medicaid support,
may be in the state's medicare -medicaid regulations in
terms of counting the domocile as assets and keeping the
home. I didn't read NY's. As I recall, PA had an absolute
presumption that the institutionalized person had a right to
preserve the home as a place to return to. But NJ took a
different twist to gain access to assets by saying there was
no right to preserve the home where return was unlikely, but
that the determination was reviewable/rebuttable. Events
turned out such that I never had to reread or test the
points. (Actually my concern was to avoid her being a PA
domiciliary because she was institutionalized in PA because
PA has a rather nasty inheritance tax.)
As an aside I thought that the surviving spouse was entitled
to take 500,000 not merely 250,000 gain exclusion if done
promptly after death of other. Something also about the time
limit being the calander year not 365 days or visa versa,
Again I never had cause to read further.
Unless your client has the profile of the late Mr. Dorrance
who successfully managed to get taxed both places, PA and NJ
upon his demise, I strongly suspect you can arrive at
different answers to similiar questions. I would think that
once one has parted with the NY property then severing ties
with NY for tax purposes is realistic not withstanding the
problem if a nursing home is one's domocile. In fact if your
client retains her competency and perhaps even without it,
you probably can establish yet a new domocile in a more
favorable haven other than NJ if it makes sense?
Aside, I read 121(d)7 in the limited context of nursing
care. Assisted living most likely doesn't cut it unless the
care level does. My parents childhood friends who moved out
of the ancestral home into assisted living and then later
into the nursing unit, all the while keeping the old home
empty I think have an uphill logic problem in saying the
clock is stayed due to nursing care because any return is to
the assisted living unit they purchased.
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