Snowbirds: Making Two Residences Affordable
A couple of weeks ago when we were traveling, my wife told me she could never live in Malibu. “It’s too cold here,” she said. I thought that was funny, but let’s face it, the Kisners have never been accused of being a hearty crew. Nevertheless, many Americans really do live in ridiculously cold climates, and millions of them migrate south in the winter. The politically correct term for these folks is “winter visitors,” but at the risk of not being PC, I still use the term snowbirds.
Snowbirds: Top Destinations
Snowbirds are typically retirees who move south for a few months each year to avoid cold northern winters. They return for the spring and summer months to maintain ties with family and friends. I wonder whether this is where the term “fair weather friend” originated. Anyway, technology has made it easier to work and communicate from any location, enabling many professionals and business owners to become snowbirds prior to retirement. Eight percent of snowbirds come from Canada each year, and the top two destinations are Florida and Arizona.
Are Two Residences Part of your Retirement Life Plan?
Many retirees and pre-retirees want to follow warm weather as part of their ideal retirement life plan. The idea of jet-setting between multiple homes may seem prohibitively expensive or complicated. Some people decide to downsize from one large house to two smaller residences in different locations. Here are a few tips or considerations that may make two homes more affordable:
- Home exchange or home rental websites such as VRBO or Airbnb have made it easier than ever to be a snowbird. You can easily find an affordable long-term rental in your desired destination and see what it is like to live like a local for a season or two before deciding whether (or where) you will buy a place of your own. These sites also make it easy to generate income by renting your home while you are away.
- RV Lifestyle: Many snowbirds own an RV (motorhome) for the sole purpose of traveling south in the winter. Living in an RV can cost substantially less than owning a second traditional residence. You can also finance an RV purchase with a 20-year mortgage and write off the interest just like a traditional mortgage. Many RVing snowbirds go to the same location every year and consider the other RVers that do the same a “second family.” Some RV parks label themselves “snowbird friendly” and get most of their income from the influx of snowbirds during the winter.
- Tax benefits can cut your costs of two residences if you make the most favorable tax jurisdiction your primary residence. You can have multiple residences, but only one domicile. Your domicile is the state you live in for tax purposes. A few of the popular warm weather states such as Florida, Texas, and Nevada do not have any state income tax. This can save a snowbird from New York, New Jersey, Illinois, and many other states a lot of money.
Make sure you can demonstrate that the state you pick as your “primary” residence really is your home base. Each state has its own requirements to prove residency, and some of them are fairly aggressive about enforcing it. Some of the basics for all the states are: make sure to change your driver’s license, mailing address, voter registration, and tax return address. A common mistake is giving the IRS the wrong address on your tax return. Uncle Sam shares that info with his 50 nieces and nephews.
One last tip: Check to make sure all your financial and estate-planning documents—especially powers of attorney, and medical directives—are still valid under the laws of your new state.