“We’re moving to Paris!” my old college friend, Nicole, announced via email. I was in shock. After all, Paris was a good 5,000 miles – as the crow (a very tired crow) flies – from Nicole and her family’s home in Texas. “It’s not permanent,” she went on to say, adding her husband’s job had transferred him for a year-long project in the city of lights.
What made Nicole’s news all the more unexpected was her family’s housing situation. Nicole and her husband, Martin, owned a sprawling 4,000 square foot house in the suburbs surrounding Fort Worth – what were they going to do with their house? Whether your job – or just your personal preferences – takes you overseas or just over the state line, it will have an impact on your finances, including your home loan and taxes.
When Martin’s boss assigned him to the Paris project, he knew it would be a great opportunity for his climb up the corporate ladder; what he didn’t know what that it would also be a great chance for his family to reevaluate their mortgage.
Nicole and Martin’s first reaction to their impending move was to put their house on the market – after all, Martin’s job would pay them a generous monthly housing stipend to live in Paris. They didn’t see the point in paying their monthly mortgage if they didn’t have to. After consulting with a financial advisor who specializes in American expats who live and work abroad, however, they reconsidered putting their house on the market. Instead, they opted for a three-pronged approach:
- Compare Home Loans – With today’s historically low interest rates, Nicole and Martin’s financial advisor suggested they shop around for a new mortgage. They’d been in their house about four years at this point, and stood to save nearly $500 a month by refinancing.
- Renting Their Home – With their monthly mortgage payments minimized, Nicole and Martin still had to decide what to do about their house while they were gone. A Realtor suggested they try renting their home as an executive rental. Because this type of rental property comes with lots of extras, including furnishings, linens, and kitchen wares, it can commend a far higher rate than a traditional residential rental. Ultimately, Nicole and Martin’s Realtor was able to put them in touch with a company who would lease their home for the entire year, making it available to various clients over the course of that time.
- Paying Down The Principal – With their home rented out and their home loan comparison complete, Nicole and Martin realized they’d not only have enough money to continue paying their mortgage while living overseas, but they’d also have more than $1,000 monthly surplus. They looked at a loan repayment calculator and saw that putting that extra money to pay down their principal would shave nearly seven years off their mortgage’s 30 year term.
Their home rented, refinanced, and in excellent financial standing, Nicole and Martin headed off to Paris excited about their year abroad.
Working Over State Lines
Living overseas isn’t the only unusual work arrangement employees are facing these days. An increasing number of workers are finding themselves living in one state while working in another. Whether you live in a city like Charlotte, North Carolina – whose southern suburbs bleed across the state line into neighboring South Carolina – or you are a weekend warrior who commutes from your home in Ohio to work Monday through Friday in Chicago, working in a different state from which you reside usually won’t affect your mortgage.
What working in a different state from your residence will affect, however, is your annual tax return. For example, say you earned your income working in Kansas City, Missouri, but your house was located in Kansas City, Kansas; you’d be required to fill out a nonresident state tax return in Missouri, in addition to your Kansas return. (Note: there are some exceptions. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming do not levy earned income taxes, making a nonresident state tax return moot in this situation.) You’ll include only your income and withholdings for the Missouri return; all your mortgage information – such as property taxes and interest deductions – will go on the return for the state in which you reside, in this case, Kansas.
This was a guest post by Libby Balke.
Photo courtesy of kimberlykv via Flickr.