Buying empty land for tax domicile purposes (foreign service officer)

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zegopis
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Buying empty land for tax domicile purposes (foreign service officer)

Post by zegopis »

I live overseas as a U.S. Foreign Service Officer. I owned a property in Maryland, but I sold it a few months ago. I do not plan to return to the United States for a few years, and so I would like to switch my state of domicile from Maryland to a state that does not levy income tax.

I know Maryland and Virginia in particular are keen to not let go of people like me, but I no longer own property in Maryland. I also have a driver's license not from Maryland (I obtained one in my parent's state of residence - New York; the last time I was home).

I was thinking that I could take some of the proceeds from selling my property and find some cheap piece of land in a state like New Hampshire (or Texas where I also have family), purchase it, and then use that land as my new address. I could get a driver's license in that state using the address of my owned property to show ties to that state.

I'm trying to think of any downsides to this plan. I'm looking at land at $10,000 or less, which I could easily afford (I put that much into crypto for 'fun' a few years ago; I.e. this is not a significant amount of my assets, most of which are in vanguard funds and my TSP). Taxes on such a property would be $250 a year; I don't think I'd have to conduct any maintenance on some rural land.

All this said, I'm not a property speculator, and maybe I'm missing something in thinking this through.
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BolderBoy
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by BolderBoy »

zegopis wrote: Thu May 19, 2022 3:14 pmAll this said, I'm not a property speculator, and maybe I'm missing something in thinking this through.
If you are willing to fly to South Dakota and stay for 24 hours, then get a SD drivers license and register to vote...poof, you have SD domicile and residency. No need to buy property.

This is commonly done by military folks and especially by folks who live in RVs and travel the country.

Nothing illegal about it.
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Weathering
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by Weathering »

If you are willing to fly to South Dakota and stay for 24 hours, then get a SD drivers license and register to vote...poof, you have SD domicile and residency. No need to buy property.
What would be an example address, for personnel records use, if someone went this route and became a S. Dakota resident?
Would it be a post office box? That would be fine, I’m just trying to think it through.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by AerialWombat »

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zegopis
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by zegopis »

BolderBoy wrote: Thu May 19, 2022 9:35 pm
zegopis wrote: Thu May 19, 2022 3:14 pmAll this said, I'm not a property speculator, and maybe I'm missing something in thinking this through.
If you are willing to fly to South Dakota and stay for 24 hours, then get a SD drivers license and register to vote...poof, you have SD domicile and residency. No need to buy property.

This is commonly done by military folks and especially by folks who live in RVs and travel the country.

Nothing illegal about it.
I've heard about SD doing this, but SD is really far from anywhere I spend time in the US. Also, wouldn't I need an address to use for my tax purposes?
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by mkc »

Owning property, especially undeveloped, does not necessarily qualify for "domicile".

You might read up on establishing domicile on some RV sites (Escapees in particular has excellent guidance and can provide options).

https://escapees.com/education/domicile/

St. Brendan's Isle in Florida is another domicile resource

https://www.sbimailservice.com/#tab-id-3
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by livesoft »

What have your colleagues done? You cannot be the only Foreign Service Officer that you know that has tried to do something like this. It is not like you work in a vacuum.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by CedarWaxWing »

If you have relatives in Texas... would it not make sense to, with their consent, use their address for all mail, billing addresses on CCards, Drivers license, federal income tax filing domicile, bank statements, voting registration, etc?

IF you have any personal property that needs to be stored... consider getting a storage unit in the same town as your relatives abode.

If you own no property in any state, and have family in Texas... how could the above not be acceptable and sensible?

Your having owned land once in Maryland does not make you the property of Maryland when you don't live their and have no assets there.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by pasadena »

CedarWaxWing wrote: Fri May 20, 2022 8:55 am If you have relatives in Texas... would it not make sense to, with their consent, use their address for all mail, billing addresses on CCards, Drivers license, federal income tax filing domicile, bank statements, voting registration, etc?
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by retired@50 »

zegopis wrote: Thu May 19, 2022 3:14 pm ... (or Texas where I also have family)...
I'd incorporate the private mailbox idea related to South Dakota, and the family in Texas into using a private mail box or a P.O. Box in Texas.

Find the nearest location to your family, just in case they need to empty your mailbox or forward something.

Link: https://www.theupsstore.com/mailboxes

Regards,
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by exodusNH »

zegopis wrote: Thu May 19, 2022 3:14 pm I live overseas as a U.S. Foreign Service Officer. I owned a property in Maryland, but I sold it a few months ago. I do not plan to return to the United States for a few years, and so I would like to switch my state of domicile from Maryland to a state that does not levy income tax.

I know Maryland and Virginia in particular are keen to not let go of people like me, but I no longer own property in Maryland. I also have a driver's license not from Maryland (I obtained one in my parent's state of residence - New York; the last time I was home).

I was thinking that I could take some of the proceeds from selling my property and find some cheap piece of land in a state like New Hampshire (or Texas where I also have family), purchase it, and then use that land as my new address. I could get a driver's license in that state using the address of my owned property to show ties to that state.

I'm trying to think of any downsides to this plan. I'm looking at land at $10,000 or less, which I could easily afford (I put that much into crypto for 'fun' a few years ago; I.e. this is not a significant amount of my assets, most of which are in vanguard funds and my TSP). Taxes on such a property would be $250 a year; I don't think I'd have to conduct any maintenance on some rural land.

All this said, I'm not a property speculator, and maybe I'm missing something in thinking this through.
This is NH's (incomplete) set of requirements for setting up domiciled status:
You make a town or ward in New Hampshire your principal place of physical presence to the exclusion of all other places. Your actions in New Hampshire reveal your intent to make a place in New Hampshire your domicile/residence. Such actions include, but are not limited to, purchasing or leasing a principal (i.e. primary) house or apartment, obtaining a resident vehicle registration, placing dependent children in a publicly funded school, registering to vote, paying taxes applicable only to residents, etc. RSA 21:6; RSA 21:6-a; RSA 259:23; RSA 654:1.
"RSA" stands for "revised statutes, annotated". It's how we refer to our laws. The state has a pretty well-indexed presence in Google. If you search for the numbers about, you should be able to find the details easily.

My take is owning a piece of undeveloped property would not be enough. But, IANAL.
inverter
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by inverter »

This seems like an overly complicated and bad solution to a simple problem many people have. What if someone trips and falls on your property?
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by humblecoder »

I am not an accountant, lawyer, or tax expert.

Using the google, I came across this article, which appears to have some perspective on this topic: https://www.greenbacktaxservices.com/bl ... -taxation/

Establish Domicile in an Income Tax-Free State

Domicile is a tax term that means your permanent and true home. You can only have one domicile at a time. Furthermore, your domicile will remain in place until you’ve established a new domicile elsewhere, which is why abandoning the status of a state residency while living abroad can be so tricky.

Establishing permanent ties in your new resident state (and country) will point to your status of having a new domicile. This includes:

The location, use (rented versus owned), and size of your residence in each location, if you have more than one
Where you spend your time
Your occupation/where you work
Where you keep your most valued items like safety deposit boxes, bank accounts, auto registrations, and more
How active you are in a local business
Where your family lives, the location of the children’s school, and social, community, and religious ties
Other elements that may indicate your future intention


From my layperson's reading of the article, it is about establishing a domicile in a new state, while severing all ties in the old state. Just severing ties with the old state doesn't seem to be enough, as you would still be considered domiciled in that state until you have established a new domicile elsewhere

Furthermore, I don't see how buying empty land would establish a new domicile based upon the criteria listed above. I would imagine that you'd have a hard time convincing the Maryland tax authorities that your new domicile is Texas based upon owning an empty plot of land. Perhaps you could bolster your argument if you had friends/family there with whom you stay when you are back in the states, and you eventually plan to build a home on the plot of land when you return. But just owning some dirt without any other connection seems tenuous to me.

Again, I am a layperson, so I could be off base.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by deikel »

There are established communities that live in an RV full time with all the services they need to establish domicile/residence in places like FL, TX or Dakotas

The idea of land only seems odd since you don't live on it or in it. Your idea also scrapes along tax evasion, which, as a federal employee, is probably not a good thing to have on your record...just saying.

Nothing stops you from buying a small RV, get all settled in ND and then move the RV to your family in TX to 'live' there.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by seawolf21 »

If you are never coming back to MD, then chances of them auditing you will be low but if they see a gap in tax returns (should you return to MD) that is when they may dig deeper as to the missing years with no returns.

At that point If MD tax authority audits you and want to challenge your domicile, just showing them a deed to a piece of land and drivers' license/voters registration is not going to be enough. They want to see you actually living (eg establishing domicile) in that other state during the missing years with items such as utilities/cell phone/groceries/financial statements/rent/mortgage etc. If you aren't able establish domicile in another state, then you keep MD domicile.

Once they see you worked overseas during the missing years, it would be pretty obvious to MD what's going on. You then have to fight them in tax court or pay the taxes/penalty/interest for the missing years. If you are never coming back to MD, then chances of an audit would be low.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by marcopolo »

It seems that buying empty land is neither sufficient nor necessary to accomplish what you intend.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by bsteiner »

A classic case involving change of domicile is In re Jones' Estate, 192 Iowa 78, 182 N.W. 227 (Iowa 1921): https://h2o.law.harvard.edu/cases/3989, http://www.uniset.ca/other/css/182NW227.html.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by seawolf21 »

Additionally if you were employed by a private entity, it would have been pretty easy to establish foreign domicile.

Not sure if being employed by Uncle Sam will allow you to claim foreign domicile (which means you don't need to buy any land in SD or anywhere else). You may want to consult with a tax expert.

In any case, if your salary qualifies for foreign earned income tax exclusion on 1040 (again not sure if being employed by US allows for this), then that income would be excluded from MD tax to begin with as MD tax is calculated off 1040 AGI.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by Statch »

Please be careful about this. If you go back to the DC area, Maryland will come after you. They are on top of this and I believe they have reciprocal agreements with the nearby states. People who talk about what RVers have done don’t understand this situation, where you are working for the government and may have no choice but to return to the DC area.
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zegopis
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by zegopis »

Statch wrote: Fri May 20, 2022 3:52 pm Please be careful about this. If you go back to the DC area, Maryland will come after you. They are on top of this and I believe they have reciprocal agreements with the nearby states. People who talk about what RVers have done don’t understand this situation, where you are working for the government and may have no choice but to return to the DC area.
I appreciate all the insights, I think this is the crux of the problem: I will have to go back to DC at some point and would live in MD or VA, there is no way around that.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by AlohaJoe »

zegopis wrote: Thu May 19, 2022 3:14 pm I live overseas as a U.S. Foreign Service Officer. I owned a property in Maryland, but I sold it a few months ago. I do not plan to return to the United States for a few years, and so I would like to switch my state of domicile from Maryland to a state that does not levy income tax.
You don't need to switch your state to some other state. You don't live in the US. If Maryland's revenue department sends you a letter then you reply with your proof of living outside of the US. Lease agreements, foreign driver's license, work contract, foreign tax returns, etc.

Your domicile is the foreign country. I'm not sure why so many people in this thread are making it so difficult.

Source: Not a certified tax professional but I've lived outside of the US for 20+ years, know dozens, maybe hundreds of others who have done the same, have worked with a megacorporation tax department, PriceWaterhouseCoopers, and Ernst & Young on structuring expat assignments.

I also received a letter from the Colorado Department of Revenue a few years after I left the US (I'm honestly a bit surprised they somehow tracked down my address in Australia!) but I just sent them a few years of my Australian tax return and that was sufficient to establish domicile. I've also been audited by the Australian Tax Office over my domicile (I'm not longer Australian tax resident) and was able to prove my case via similar means (showing non-Australian tax returns & apartment leases).
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by Tatupu »

FSO here. It’s not that simple. You have to have a U.S. state listed for tax purposes. So until the individual actively establishes a domicile in another U.S. state Maryland will continue to take its bite. Also, as a fed employee, even if you never step foot in the U.S. that tax year, you can’t get that federal exclusion that others get if they are out of country for 330 days. And you are subject to taxation from one of the 50 states.

I know many officers who are Florida residents and they don’t all own property. Many will domicile in a state where they can receive mail, get a driver’s license, register to vote, change your home leave address, etc. Once you’ve established that domicile in another state, you use that evidence to show MD if they try to keep ahold of you. It doesn’t matter whether you then return to the DC area because you are there temporarily. You will have to file tax returns in either MD, VA or DC, but you don’t automatically lose that other state of domicile. So when back overseas you don’t file anything with MD, VA, or DC if you weren’t there, you just have to file (or not file if they don’t have income tax) in that other state where you are domiciled permanently.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by AlohaJoe »

Tatupu wrote: Sun May 22, 2022 4:03 am FSO here. It’s not that simple. You have to have a U.S. state listed for tax purposes.
Listed where? Who requires it? The IRS? The FSO? All 50 states have a tax code that says it?

What happens to citizens born abroad? What state do they use for this requirement?

Does it only apply to US citizens or does it apply to anyone with an ITIN? What part of the tax code spells out the exact definition of who is included in this requirement?
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by Tatupu »

AlohaJoe wrote: Sun May 22, 2022 4:25 am
Tatupu wrote: Sun May 22, 2022 4:03 am FSO here. It’s not that simple. You have to have a U.S. state listed for tax purposes.
Listed where? Who requires it? The IRS? The FSO? All 50 states have a tax code that says it?

What happens to citizens born abroad? What state do they use for this requirement?

Does it only apply to US citizens or does it apply to anyone with an ITIN? What part of the tax code spells out the exact definition of who is included in this requirement?
I can’t answer that. What I know is that as FSOs we have to have a domicile in the U.S. We have to provide our state of domicile for payroll purposes. We also have to maintain a “home leave” address in the U.S.

If I lived in Virginia, for example, and then joined the Foreign Service and was on official orders overseas for 30 years in 10 different countries without stepping foot in Virginia, I would be required by law to pay income taxes to the state of Virginia for those 30 years unless I had domiciled in a different U.S. state. We can’t establish a domicile overseas when we are employed by the federal government and sent overseas on official U.S. Government orders.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by seawolf21 »

AlohaJoe wrote: Sun May 22, 2022 4:25 am
Tatupu wrote: Sun May 22, 2022 4:03 am FSO here. It’s not that simple. You have to have a U.S. state listed for tax purposes.
Listed where? Who requires it? The IRS? The FSO? All 50 states have a tax code that says it?

What happens to citizens born abroad? What state do they use for this requirement?

Does it only apply to US citizens or does it apply to anyone with an ITIN? What part of the tax code spells out the exact definition of who is included in this requirement?
Listed in tax codes/guidance.

There are two different things going on here. The discussion was about changing domicile to another US state which only involves MD tax authorities. You are referring to changing foreign domicile which involves IRS as well.

As Tatupu indicated, being employed by federal government is the problem here.

Tax code both on federal and state (for those that have income tax) level levy tax unless taxpayer can establish domicile outside the country/in a new state and to claim foreign domicile involves no intent to return to US to live. One factor is whether you have/can obtain a permanent residency/foreign citizenship status in foreign country.

It is a high bar to make that claim while being employed by US government. It is much easier to do that being employed by a private entity. The later can probably transition to foreign permanent residency status at some point and also take the federal foreign earned income exclusion; the former can’t.

OP can change MD domicile to another state but very unlikely it will be recognized by MD with just simply buying land/changing drivers license etc. OP needs to demonstrate actually living in that other state for a period of time to substantiate a change in domicile.
Last edited by seawolf21 on Sun May 22, 2022 7:05 am, edited 1 time in total.
gtd98765
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by gtd98765 »

Have you read this article from the Transition Center? https://www.state.gov/foreign-service-a ... -i-do-now/
Chapter 29 has a section on residence & domicile, which starts like this:
RESIDENCE AND DOMICILE
Where is “home”? Foreign Service families, more than most, have difficulty answering that question.
e query, “Where is your residence?” may be even more troublesome. It depends how you use the
term “residence,” who is asking the question, and the reason for the question.
It goes on for several pages.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by eric321 »

Could you buy a condo in New hampshire or Texas, and hire a property management company to rent it out when you are not there?

Or a lakehouse or some type of short term rental that has some ability for the IRS to see this is a home.

Buying land in an RV Park could be another option as well. Plenty of people live in an RV park.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by seawolf21 »

eric321 wrote: Sun May 22, 2022 7:16 am Could you buy a condo in New hampshire or Texas, and hire a property management company to rent it out when you are not there?

Or a lakehouse or some type of short term rental that has some ability for the IRS to see this is a home.

Buying land in an RV Park could be another option as well. Plenty of people live in an RV park.
Are you encouraging OP rental income to be not reported? If you reported, then it is clear OP is not living there. If not, then that is opening OP to tax evasion.

To truly establish domicile in another state, OP has to live there. There is no shortcut to it.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by humblecoder »

AlohaJoe wrote: Sun May 22, 2022 2:44 am
zegopis wrote: Thu May 19, 2022 3:14 pm I live overseas as a U.S. Foreign Service Officer. I owned a property in Maryland, but I sold it a few months ago. I do not plan to return to the United States for a few years, and so I would like to switch my state of domicile from Maryland to a state that does not levy income tax.
You don't need to switch your state to some other state. You don't live in the US. If Maryland's revenue department sends you a letter then you reply with your proof of living outside of the US. Lease agreements, foreign driver's license, work contract, foreign tax returns, etc.

Your domicile is the foreign country. I'm not sure why so many people in this thread are making it so difficult.

Source: Not a certified tax professional but I've lived outside of the US for 20+ years, know dozens, maybe hundreds of others who have done the same, have worked with a megacorporation tax department, PriceWaterhouseCoopers, and Ernst & Young on structuring expat assignments.

I also received a letter from the Colorado Department of Revenue a few years after I left the US (I'm honestly a bit surprised they somehow tracked down my address in Australia!) but I just sent them a few years of my Australian tax return and that was sufficient to establish domicile. I've also been audited by the Australian Tax Office over my domicile (I'm not longer Australian tax resident) and was able to prove my case via similar means (showing non-Australian tax returns & apartment leases).
I am not a tax expert either.

From the actual Maryland tax website: https://www.marylandtaxes.gov/forms/Tax ... r_it37.pdf

QUESTION: I moved from Maryland overseas to work for the US Government and never intend to return to Maryland. I returned to the US and stayed temporarily with friends in other states. Why am I subject to Maryland income taxes?

ANSWER: It is a fundamental rule that in order to affect a change in domicile, there must be an actual removal to another habitation, coupled with an intention of remaining there permanently, or at least for an unlimited period of time. But a change of residence to enable a person to perform the duties of a civil office, whether elected or appointed, does not itself constitute a change of domicile. No temporary residence, whether for the purposes of business, health, or pleasure, occasions a change in domicile. Even though a person may be absent from their domicile for many years and may return only after long intervals, nevertheless, they retain their domicile if they do not acquire a domicile elsewhere.


Again, as I layperson, my interpretation of this is that because the OP is on a temporary assignment overseas working as a FSO (temporary meaning the there is a defined endpoint), Maryland tax law would not consider the person living overseas to have changed their domicile since changing one's domicile requires some level of permanent intent.

Yes, you could argue about the fairness of paying income taxes to a state that you don't set foot in. Unfortunately, the law doesn't have to be fair. If you have a problem with this, feel free to lobby the Maryland legislature on this topic. Glad Colorado gave you a pass, but circumstances in this case point to the fact that Maryland would not likely give the OP a pass.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by halfnine »

humblecoder wrote: Sun May 22, 2022 1:06 pm
From the actual Maryland tax website: https://www.marylandtaxes.gov/forms/Tax ... r_it37.pdf

...No temporary residence, whether for the purposes of business, health, or pleasure, occasions a change in domicile. Even though a person may be absent from their domicile for many years and may return only after long intervals, nevertheless, they retain their domicile if they do not acquire a domicile elsewhere...[/I]
This is definitely the key point. And one needs to separate domicile (as indicated above) with residency. And one has might have to look at both when it comes to paying taxes which means one could have tax obligations in more than one locale.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by celia »

AlohaJoe wrote: Sun May 22, 2022 4:25 am What happens to citizens born abroad? What state do they use for this requirement?
One of the most important rights and responsibilities of US citizenship is the Right to Vote. But you can’t vote without being registered to vote someplace within the US borders. Some county needs to know your last US domicile (including a street address for local elections) so they can send you a ballot. If you were born outside the US but are a citizen by reason of one of your parents being a citizen (and they notified the state department of your existence—you probably needed a passport too), then you are a resident of the last state (and street address) where they had lived.

I was working at a voting precinct one time when I saw the name of someone who used to watch our kids listed on the voter rolls, at her last US address. The last I knew, she had moved back to her mother country since her parents were ailing. I was so surprised to see her walk in the door an hour later to vote. Her parents had died and she had just returned to the states!
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by langelgjm »

Folks responding to this thread need to understand that the domicile and tax rules for US Foreign Service Officers posted abroad are very different than for US expats in general. FSOs are required to have a US domicile and pay any relevant state income tax even if they don't live in that state for years. They are also not eligible for FEIE. From a tax perspective they may as well be US residents.

I may be joining an upcoming FSO class so I know a bit about this. It's not unrelated that I moved to NH a year ago. I also considered doing the South Dakota thing just to get that initial domicile selection in a no income tax state.

OP, South Dakota has some other benefits in that it will allow you to do more valuable cost construction for flights home. But I think you'll have a problem if you're going to be serving DC tours and living in either VA or MD again.

You may have more luck posting in r/foreignservice on Reddit than here, since while we have a lot of expats here your situation is not typical.
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Re: Buying empty land for tax domicile purposes (foreign service officer)

Post by Big Dog »

fwiw: in addition to the no-income tax states, this article indicates that 10 other states do not tax income when earned elsewhere.

https://afsa.org/sites/default/files/20 ... xGuide.pdf
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