If you’ve recently relocated to sunny Southwest Florida, you’re not alone. Many Gulf Harbour residents move here for the lifestyle and tax advantages. Florida offers no state income tax, no estate tax, and a favorable property tax structure, making it a prime destination for those seeking financial benefits alongside sunshine.
However, simply owning property in Florida doesn’t mean you’ve escaped the tax authorities in your former state. If you maintain a home up north or frequently travel there, you may be surprised to learn that your old state still considers you a resident for tax purposes. This can result in unwelcome state income tax bills, estate tax exposure, or even audits. Understanding and addressing these issues is critical to securing your financial future.
What Determines Residency?
Residency for tax purposes isn’t just about where you say you live. Northern states with high income taxes, like Minnesota, Illinois, New York or Massachusetts, often use two key tests to determine residency: domicile and statutory residency.
Domicile refers to your permanent home, the place you intend to return to after travel or time away. However, even if you follow a Florida residency list as described below, some states may argue that the facts of your lifestyle still tie you to your former state.
Statutory residency often hinges on the 183-day rule. This rule states that if you spend more than 183 days in your former state, even partial days—you may be deemed a resident for tax purposes, subject to that state’s income tax. A retired executive client of mine crossed this threshold without realizing it. His frequent short business trips to his old state added up, and the state used credit card records and flight data to prove he owed taxes there.
Source Income and Ongoing Tax Obligations
Even if you meet Florida’s residency requirements and avoid statutory residency in your former state, source income earned in that state may still be subject to its taxation. For example, rental income from a property you own up north or business income from a company based there could tie you to your old state’s tax obligations.
State Estate Taxes on Non-Residents
Estate tax exposure doesn’t disappear simply because you’ve moved to Florida. Many northern states impose estate taxes on real property or business interests located within their borders, even if you’re no longer a resident. For instance, a client who owned a second home in Massachusetts discovered that upon his death, a portion of his estate would be subject to Massachusetts estate tax—even though he had lived in Florida for over a decade. This is because Massachusetts, like several other states, taxes non-resident property owners proportionally.
Proper planning, such as placing out-of-state property into an LLC, although this won’t work in some states, like Connecticut, can minimize these risks and reduce the tax burden on your heirs.
Steps to Solidify Florida Residency
To strengthen your case for Florida residency and avoid unnecessary tax entanglements, consider these key actions:
- Declare Florida as Your Domicile: File a Declaration of Domicile with your local county clerk’s office to formalize your intent to make Florida your permanent home.
- Redirect Your Life to Florida: Update your legal documents, such as wills and trusts, to comply with Florida law. Obtain a Florida driver’s license, register your vehicles, and register to vote in Florida. Use your Florida address for tax filings, bank accounts, and insurance policies.
- Spend Less Time Up North: Keep meticulous records of your time in Florida versus your former state. Auditors often scrutinize credit card statements, phone records, and even utility usage to confirm how many days you spend in each location.
- Apply for Florida’s Homestead Exemption: This not only reduces your property taxes but also reinforces your claim to Florida domicile.
- Sever Ties to Your Old State: Cancel memberships in social or professional organizations up north and shift your primary doctors and professionals to Florida.
- Plan for Source Income: Work with a tax advisor to understand how any income generated in your former state will be treated and plan accordingly. This includes rental income, royalties, or ongoing business interests.
Protecting Your Legacy
Estate planning is another critical aspect of transitioning to Florida residency. Florida’s favorable descent and devise laws, combined with its lack of state estate tax, provide opportunities to protect your wealth for future generations.
Without careful planning, your heirs could face a dual-taxation scenario. For instance, failing to retitle your northern vacation home into a trust could leave it exposed to both probate in Florida and estate tax in your former state. Ensuring your estate plan aligns with Florida law while addressing out-of-state exposure is key to preserving your legacy.
The Bottom Line
Establishing Florida residency is about more than sunny weather, it’s about protecting your financial future. By understanding the nuances of residency, source income, and out-of-state estate tax exposure, you can enjoy Florida’s tax advantages with peace of mind.
If you’ve recently moved to Florida, now is the time to review your estate plan, update your legal documents, and address any lingering ties to your former state. A proactive approach today will save you and your family headaches tomorrow.