Tax Benefits of Florida Homeownership
Florida attracts residents from all over the world with a warm subtropical climate and breathtaking beaches. Aside from the lifestyle perks, there are significant tax benefits of Florida homeownership. Establishing Florida residency offers major tax benefits with no income or estate tax, a generous Homestead exemption, retirement tax breaks, and corporate tax exemptions
No State Or Local Income Tax
There are no state or local income taxes in Florida. This can be a substantial saving, particularly for those moving from states with higher local and state taxes, such as New Jersey, New York, or Vermont. Since the 2017 Tax Cuts and Jobs Act, which limits the amount of state and local taxes an individual is able to deduct on the federal level to $10,000, Florida is an even more attractive move.
No Estate Or Death Taxes
Be sure to update your will and estate plan to show your Florida address as your primary residence. Include any Florida properties, and be sure to express that your wishes are to have your will and estate plans executed under Florida law. In the event of your death, Florida, unlike the majority of states, does not tax your heirs or your estate. If you do not have estate plans or a will in the state of Florida, and you die, the state intestacy succession laws will decide how to move forward with your assets.
Homestead Exemption, SOH, Amendment 5
The original legislation for Homestead Exemption, one of the first tax benefits of living in Florida, was passed in 1934. The exemption originated to protect homeowners who fall financially on hard times and widowers from losing their homes. Additionally, Homestead Exemption also was intended to entice people to move to Florida. Homestead gives a $25,000 exemption, including school district taxes on the home’s assessed value. The next $25,000 of the assessed value is fully taxed, then the 25k between $50,000 and $75,000 is exempt, but not from school district taxes.
Save Our Homes or “SOH” allows the transfer of tax benefits from one primary home residence to a new house. Portability is the term used for this transfer of tax benefits. The new house must be filed for Homestead exemption and the primary residence of the homeowner. SOH allows up to $500,000 in portability. The equation works like this, take your previous home and subtract the assessment value from the market value. That number can then be subtracted from your new home’s assessed value for a current assessed value for taxes. For example, if your previous home’s market value is $250,000, the assessed value is $200,000. Your new home has an assessed value of $300,000. You would be able to minus $50,000 from the new home for a current assessed value of $250,000.
Amendment 5 passed in November 2020 and extended the timeframe for portability to 3 calendar years where it previously was 2. This gives sellers an opportunity to sell when the market is hot yet have the flexibility to rent if there are circumstances that aren’t allowing an immediate purchase of a new home. The tax benefits from a previously homesteaded house can be transferred to a new primary residence in Florida for up to 3 years. Note that it is 3 tax years, so no matter what month you sell your house, the rest of that year is number 1.
Retiree Tax Benefits of Living In Florida
It is important to mention that in addition to the savings on property taxes from Homestead and SOH, tax benefits of living in Floria for retirees are massive. Retirees with Florida domicile do not have to pay state or local income taxes on any retirement income or social security benefits. Furthermore, not having to pay state or local income taxes, those retirees who choose to work part time get to keep more of their paycheck.
In addition to the tax benefits of living in Florida, there are advantages to owning a business in the sunshine state. LLC’s, sole proprietorships, and S Corporations are exempt from state income taxes in Florida. C corporations, defined as a company where the shareholders or owners are taxed independently from the business, are the only entities required to pay state taxes in Florida. Business profits are taxed on both the owners and the business. The Florida state tax on federally taxable income is 5.5%, but this can be lowered through deductions and credits. Corporate taxes are exempt from the first $50,000 of income in Florida. After that, businesses either pay the minimum tax rate of 3.3% or the standard 5.5% rate, subtracting all exemptions and credits, whichever is less.