Spending carefree, peaceful days in the Florida sun has long been the retirement dream of Americans laboring through harsh northern winters.
However, recent tax law changes have prompted many younger Americans to consider moving south for purely financial reasons.
The tax benefits of relocating to the Sunshine State are very real, but obtaining those benefits requires more careful planning than most people realize.
The SALT Deduction Limit
While all local county and city governments generate revenues from real estate (property) taxes, states vary greatly regarding the tax rates they assess on the income of their residents. Florida and Texas belong to the “Lucky Seven” Club—seven states where residents pay no state income tax. Meanwhile, many northern states like New York, New Jersey, and Massachusetts have extremely high individual income tax rates. The impact of this disparity has greatly increased under the Tax Cuts and Jobs Act (TCJA).
Prior to tax year 2018, taxpayers in high-tax states had the benefit of claiming an unlimited tax deduction for State and Local Tax (SALT) on their federal income tax returns. The deduction did not erase the income tax contrast between states, but it did somewhat buffer the extra tax burden that New Yorkers had to bear.
Under the TCJA, however, the SALT deduction is now limited to $10,000 per year. This deduction cap subjects many taxpayers to a form of double taxation (paying both federal and state income taxes on the same earnings), an extremely annoying concept and a roadblock to savings and wealth accumulation.
Establishing Domicile in Florida Is Tricky but Worth It
Domicile is a key principle in state taxation, and is defined as the place where a person intends to reside indefinitely, meaning that even if the person leaves that dwelling for extended periods of time, he or she always plans to return.
Under the law, no matter how many homes a person has spread around the country, that person is still domiciled in just one state. To avoid New York income taxes, establishing domicile in Florida is critical.
Auditors look at a taxpayer’s actions for clues regarding where the person intends to live long term. To convince the State of New York that a claim of domicile in Florida is legitimate, in addition to using your Florida address on all bank and investment accounts, take as many of the following steps as possible:
- Register to vote in Florida and request removal from voter registration logs in New York.
- Spend at least half of the year in a single Florida residence.
- Register a vehicle in Florida and obtain a Florida driver’s license.
- File a declaration of domicile at a Florida county office.
- Actively participate in a Florida organization, such as a church, sports league, or outing club.
- Move as much personal property to Florida as possible. Auditors refer to this as the “near and dear” criterion, and it plays a major role in determining domicile.
- List a Florida address on federal tax returns, and mail the forms to the IRS Service Center in Austin, Texas (paper return with no payment) or Charlotte, North Carolina (paper return with payment enclosed). Otherwise, file your tax return electronically in accordance with IRS e-file guidelines (or through your CPA’s office).
- Make sure to pay all real estate taxes on Florida property as a state resident.
Steering Clear of New York’s Statutory Residency Rules
By taking most of the actions listed above, it is possible to establish domicile in Florida even while still spending over half of the year in New York. Although doing so would be an impressive feat, it would also be a terrible tax strategy. Under New York law, anyone who spends 183 days of the year or more in New York is classified as a “statutory resident,” and must pay state taxes accordingly.
For the purpose of determining statutory residency, New York will count any part of a day spent within the state as an entire day. For example, a person who arrives at LaGuardia Airport at 10:30 p.m. on Friday evening and flies out at 4:30 a.m. Sunday morning has just logged three New York days for tax purposes. While exceptions are made for brief travel layovers during which an individual never leaves the premises of an airport or train station, the rule of thumb for staying within the 182-day limit for nonresident status is, “Every second counts.”
How to Beat a New York State Audit
With all the revenue at stake, New York state tax agents do not just stand in the doorway and cheerfully wave goodbye when a resident packs up and heads south. They aim to pin as much tax liability as possible on everyone who maintains ties within their state. For those seeking to avoid New York taxes by relocating to Florida, it is imperative to maintain thorough records supporting claims of Florida domicile and nonresident status in New York.
Seek guidance from a qualified tax advisor who has handled many cases in both high and low-tax states, and proceed as if New York auditors lurk around every corner. Document every step of the relocation process thoroughly, and never buy into the myth that one can slip in and out of New York incognito without having a day count toward statutory residency. With all the ways that a person’s location can be tracked—from cell phone and credit card usage to a license plate photo snapped by a tollbooth—the arm of the tax law is very long, indeed.
Nonresident Taxes May Still Apply
Bear in mind that even if a taxpayer successfully wins a New York audit by proving Florida domicile and avoids classification as a statutory resident, that does not mean he or she is completely immune to New York taxation. Those who own New York property must pay state and local real estate taxes, as well as state income tax on earnings from renting out the property. Similarly, Florida residents who derive income from New York-based activities such as passive investment ownership in a portion of a New York City-based business must pay New York State (and New York City) income tax as nonresidents.
Nevertheless, having limited New York tax liability for specific activities remains far preferable to being taxed as a New Yorker year round. Done the right way, a New York to Florida move really can mean big savings, especially if one makes the move at a young age and then harvests the tax benefits for decades.
This article is not tax, legal, or other professional advice and cannot be relied upon for any purpose without consultation and advice from a retained professional.
As one of the most knowledgeable and well-connected tax & accounting professionals in the world, Harvey Bezozi's mission as a CPA and CFP ® is to provide concierge-level work product and service, along with seamless communication, high energy, and a super-positive attitude. Located in Boca Raton, Florida, Bezozi has been in business since 1994, and serves clients in all 50 states and internationally. More information can be found at YourFinancialWizard.com
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