So where are you from? And if you own a residence in Florida and haven’t declared Florida residency yet, why haven’t you yet?! In case you haven’t heard, living here can substantially decrease your tax bill. In contrast with forty-four (44) other states (including Washington, DC), Florida doesn’t impose a state income tax.
In 2017, fifteen states (CT, DE, DC, HI, IL, ME, MD, MA, MN, NJ, NY OR, RI, VT and WA) impose an estate tax, while six states (IA, KY, MD, NE, NJ and PA) levy an inheritance tax. One state even taxes gifts (CT)!
By making your Florida residence your legal homestead, not only can you shed many of the taxes discussed above, you may also enjoy a property tax break due to the “Save Our Homes” property assessment cap that serves to limit each county’s tax appraiser’s ability to increase the assessed value of your homestead for property tax purposes.
Especially if you own a residence both here and somewhere else – and your current state imposes income, estate, inheritance or gift taxes, why would you remain a legal resident of that other state? The answer isn’t necessarily that you don’t spend enough time here in Florida. In fact, Florida really doesn’t care how long you stay here, so long as you take the necessary actions to establish residency which typically includes registering as a voter, obtaining a drivers license, declaring Florida homestead and disassociating yourself from the residency of your former state.
And that’s where most of the issues arise. It’s really not so much whether you can establish Florida residency under Florida law – that’s the easy part – it’s really all about whether you can successfully disassociate yourself under the statutory provisions of the state from which you formerly legally resided.
One important note of which everyone should be aware – if you have “source income” that is earned in another state, then that income will likely continue to be taxed in that state regardless of your residence. A classic example of source income is that earned in your employment or business activity in that state. Another example would be rental income from real estate located in that state.
In contrast, you may save considerable tax sums from interest, dividend, capital gains, IRA, 401(k) and similar accounts should you successfully break from your former state of residence. Breaking from that state doesn’t necessarily mean that you should sell your residence there. You just need to be aware of the rules that each state has created to determine who they consider a resident for tax purposes.
New York, New Jersey and Pennsylvania are examples of states that consider an individual a resident if that person spends more than 183 days in the state. They may also consider where your spouse and minor children spend a considerable amount of time when deciding whether you fit under their taxing umbrella. Minnesota recently considered some of the most draconian residency laws that beg to be challenged in court.
By and large, the individual states don’t want to lose tax revenue – especially to their residents who own homes in tax-friendly Florida, and are looking for any and all means available to retain their citizens as state taxpayers.
I’m often asked how the states determine how many days you’re actually there. With today’s technology, there’s a number of means available. If a former resident has filed his last state income tax return, and the state decides to audit whether he has established residency elsewhere, it may decide to subpoena credit card, cell phone records or even flight receipts.
To remove yourself as a taxpayer from a northern state, you may want to consider a two step process. The first step is to take the necessary actions to become a resident of Florida, with the second step including taking steps to abandon your former legal residence. When becoming a Florida resident, in addition to declaring homestead, obtaining a voters registration and driver’s license, one should consider changing your address for passports, Medicare, Social Security and tax returns, as well as keeping a log of your travel.
When abandoning the old state residence, so long as you don’t have any “source income” in that state, filing a final state income tax return appropriately marked “FINAL” at the top of the return would be appropriate. If there is such a thing as a homestead declaration in your other state, you should renounce that declaration (which is also a Florida requirement). You would want to change your primary physician to Florida and change your legal documents, among other things.
If you decide to join those of us who agree that Florida is a great state to reside, you will have plenty of company. Florida recently overtook New York as the third largest state by population, behind only California and Texas. We welcome nearly 1,000 new residents every day.
So I ask again – if you own a residence here but are legally domiciled in a state that imposes its own income tax, estate tax, inheritance tax and/or gift tax in addition to what you pay the federal government, why aren’t you already one of us?
To find out more about declaring Florida residency and escaping your former state’s taxing authority, please visit Is My Estate Plan Florida-compliant?, where you can read more and watch a 2-minute video I made covering the basics, or contact us by phone at (239) 334-1141.
©2023 Craig R. Hersch. Learn more at www.floridaestateplanning.com