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Many people start out by vacationing in Florida in the winter months with their
families (Floridians call these people "snowflakes"). Over a period of time, they
entertain purchasing a second residence, and eventually end up spending more and more time in the Sunshine state (Floridians call these people "snowbirds").
Eventually, particularly after retirement, the question arises as to whether they should give up their northern state residency, mostly to avoid having their income taxed in that state, in favor of Florida, which does not have any personal income taxes.
Outlined below are the issues to be considered in changing your residency. Keep in mind that this is a general overview only, however, and the change of your domicile can be a complex issue, affecting real property taxes, federal and state income taxes, and federal and state estate (inheritance) taxes. You should work with your attorney to provide you with specific guidance, and not rely on the generalizations contained in this blog.
In contemplating changes of residency, it is important that pending changes be
made prior to January 1 in the year that you wish to change your residency, in order to qualify for the Florida Homestead.
While the Florida homestead application does not need to be filed with your county property appraiser until March, the form clearly states that residency must be established by January 1. This also creates a clear deadline for filing your final state income tax return. If your state provides for partial year filings (and most do), you may wish to consider changing your residency prior to December 31 for state income tax purposes.
In some states, it is possible for one spouse to be a resident of their original
domiciliary state, and the other to be a resident of the state of Florida. This is
particularly helpful when the original domiciliary state offers property tax relief for a resident.
Typically, we would domicile the spouse with the least amount of income in
the northern state, while domiciling the income producing spouse in Florida. This division of domiciles, however, should not be done without consultation with your accountant and attorney in both states, as there may be adverse income or property tax consequences in your home state.
The determination of residency is a fluid concept. One can certainly be a
resident of more than one state. In order to determine whether one is a Florida resident or a resident of another state, you must first look to the intent of the party.
While the number of days resident is in the state is helpful, (183 days being a majority of the year), it is not definitive. If audited, an auditor will first look at the number of days where the taxpayer was resident, then will review “other factors”. Therefore, it is important for the taxpayer to make the “other” factors work to the taxpayer’s benefit. My recommendations in these factors include:
Obtain a Florida driver’s license. Note that obtaining a Florida driver’s license is not sufficient to establish residency. The State of Florida believes that having a Florida driver’s license is mere a statement of your intent to become a resident.
File a Declaration of Domicile with the county clerk. SanCapLaw can prepare this document for you.
Register to vote in Florida and actually vote. You may vote absentee.
Apply for a Florida homestead exemption, if eligible.
Register a vehicle in Florida -- which will require obtaining Florida auto insurance.
Execute wills, trusts, powers of attorneys and living wills as a Florida resident.
File federal income taxes with a Florida address.
File your final state income tax return from your former domicile, and mark the return “Final Return”.
Move investment accounts held in your home state to a Florida investment manager or broker.
Have all bank statements, bills, financial data and correspondence sent to your Florida address.
Change former country club and similar memberships status to "non-resident”.
Transfer safety deposit box contents to Florida.
Affiliate with a Florida church or temple.
Change address on passport.
Refrain from using credit cards and debit cards in the former state. Also, never request a discount available only to residents of that state, such as school tuition or senior citizen’s discounts.
Consider placing real property in former state into a Florida Limited Liability Company.
It is not necessary that a party do all of these things to be a Florida resident, but
the more things that could demonstrate to an auditor as to the party’s intentions, the more likely that they will be considered a Florida resident.
Remember that the taxpayer is attempting to demonstrate to two state authorities that they are a Florida resident.
First, one needs to demonstrate to Florida that the party’s intention is to be a Florida resident for purposes of the homestead application.
This can be accomplished by showing the issuance of a Florida driver’s license, Florida automobile registrations, and a Florida voter’s registration. The Affidavit of Domicile is also helpful, but not mandatory.
Secondly, the taxpayer needs to demonstrate to the (former) home state that they have permanently left that jurisdiction, and are no longer subject to their taxation and authority. The items above are helpful in this regard.
As an aside, I would note that the state of New York has issued auditing guidelines that have become the standard for many other states. Many of the above items are issues that the state auditors are directed to review.
One of the most helpful tools for the auditor, however, is bank records. In today’s cashless society, bank records leave a veritable trace of day to day activities. By reviewing gasoline purchases, ATM withdrawals, and debit card purchases at restaurants, grocery stores and retailers, an auditor can very quickly identify what state a taxpayer is physically located in on almost any day.
Due to changes in Federal Estate Tax laws and the loss of certain credits, many
states have reverted to Inheritance or State Estate Taxes. These estate taxes can be incurred even when you do not have a Federal Estate Tax due.
For example, Connecticut has a tax that can reach 20%. Real property that you own in another state may be subject to that state’s Estate Tax. It may be possible to avoid the imposition of state Estate Tax by placing your property in a Florida Limited Liability Company.
Such a transfer changes that characteristic of the property from real property into personal property. In other words, you no longer own real estate in your former state, but rather you own a personal property interest in a Florida LLC.
You should discuss any potential property transfer in detail with your attorney prior to making the transfer.
In 2006, Florida repealed the Florida Intangibles Tax. At this time, there are no
personal taxes, income or intangible, in the state of Florida.
A change in domicile is an exciting, and sometimes emotional, consideration.
I am happy to assist you in making this transition as easy as possible. Please
contact me for more information.