Financially Independent and love Florida? Move there and you’ll lower your taxes by more than 10%

by Walter Daszkowski

Florida is frequently mentioned when we northerners look to make a move to a less taxing state, financially and psychologically. Aside from the climate, miles of beautiful beaches, and tourist attractions, it also offers considerable tax advantages.

Florida is one of only seven states that do not collect an income tax at the state level (the other six are Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming). For the wealthiest of residents, New York State’s and New York City’s combined maximum tax rate is currently 12.7%, while New Jerseyans have a maximum rate of 8.97%. The prohibition against collecting an individual income tax is part of the Florida Constitution, therefore we are not likely to see one any time soon. (Bear in mind, however, that any taxpayer deemed a nonresident of New York as a result of changing residency to Florida will continue to be taxed in New York State on any income deemed New York-sourced.)

The Sunshine State also does not collect an estate tax. Currently, the New York State estate exemption is $3,125,000— any estate exceeding that is taxed at a rate dependent on the valuation of the estate, whereas one in New Jersey with a total value of more than $675,000 is subject to the estate tax (New Jersey also has an inheritance tax). In Florida, residents do not pay estate taxes on the state level, but are only subject to Federal estate tax if the value of the estate is over the exemption limit at the time of death. A Florida resident’s estate will still be subject to a New York estate tax, however, to the extent that the decedent owned real estate or tangible personal property in New York State at the time of his or her death.

Florida also offers asset protections. Many are in fear of losing their assets to creditors, or in a lawsuit. Florida’s benefits including homestead creditor protection, which protects a state resident from losing their home if someone sues them and obtains a judgment against them. State law also provides that a judgment holder cannot force the resident to sell a homestead in order to pay off the judgment. (This protection however, does not protect against a mortgage lender lawsuit.)

Another protection is a type of shared ownership of property called “Tenants by the Entirety,” for real property as well as personal property. When one spouse dies; the surviving spouse immediately becomes the sole owner of the property, which passes outside of probate to the surviving spouse instead of the deceased spouse’s heirs at law under the terms of the deceased spouse’s will or revocable living trust. Such Tenants by the Entirety property is not divisible on behalf of one spouse alone, and therefore cannot be reached to satisfy the obligations of only one spouse.

Florida also offers protection of the cash value of life insurance, protection for IRAs and annuities, and protection of assets held in a properly structured business entity.

Last but not least, the Sunshine State offers property tax benefits for a primary residence. If you buy a home in Florida as your primary residence, there are two property tax benefits. First is an exemption for the first $50,000 of value for property tax purposes (there is a $25,000 exemption in certain school districts). Second, as the residence increases in value the more years it’s owned, there is a “Save Our Home” cap on annual assessments. The cap is set at the lower of 3% or the change in the Consumer Price Index.

Florida residency, then, may be an attractive option for those in New York and New Jersey, but establishing it takes more than simply owning a home there. Residency rules in the latter two states are complex and premised on concepts of domicile, statutory residence, and day count tests. With careful planning, however, the results are often savings valued in millions of dollars.

Daszkowski, Tompkins,
Weg & Carbonella CPA P.C.
1303 Clove Road, Staten Island
718.981.9600 / wdcpa.com