Tax Benefits of Living in Florida
TAX BENEFITS OF LIVING IN FLORIDA
The state of Florida attracts people from all over the world. The unique biodiversity, tropical climate, sunshine, and sandy beaches offer a refreshing healthy, active, adventurous lifestyle, particularly enchanting during the winter months for those who live in cooler climates. However, in addition to the weather, there are incredible fiscal savings from the tax benefits of living in Florida. Since the COVID-19 Pandemic struck, the Sunshine State has seen an increase in transplants, according to Florida's Chief Financial Officer Jimmy Patronis, each day approximately 900 people move to Florida.
The most Southerneast state in the country is especially appealing to Northerners residing in highly populated metropolitans with colder climates. With historically low mortgage interest rates and inflation continuing to rise, luxury homes with plenty of space are perfect investment opportunities, plus the tax benefits of living in Florida are monumental for those coming from high taxed states like New York, New Jersey, Maine, and Vermont. Some argue if you take into consideration the number of outbound moves, the increase in out-of-state homebuyers in Florida is minimal. The number of home sales on the high end, luxury homes over $500,000, has shown a dramatic increase in closed sales. Conversely, home sales on the lower end, under $500,000, have decreased. The most recent U.S. Census Bureau figures illustrated Florida has the third-highest population, 21,538,187 million people as of April 1, 2020. In addition to the warm weather, fiscally, the tax benefits in Florida are among the top reasons retirees, remote workers, and affluent investors chose to relocate. There are no state income taxes in Florida and no estate taxes. However, there are lesser-known fiscal perks to owning a home and claiming a domicile in Florida.
Throughout this article, we will cover some of the basic tax benefits of owning a home and claiming Florida as your primary residency. Topics covered include establishing legal residence, state income taxes, estate taxes, homestead exemption, the Save Our Homes Act alongside Amendment 5. Additionally, we will touch base on tax benefits for retirees, veterans, and businesses located in Florida.
-HOW TO ESTABLISH RESIDENCY IN FLORIDA
-NO ESTATE OR DEATH TAXES
-HOMESTEAD EXEMPTION, SOH, AMENDMENT 5
-VETERAN TAX BENEFITS OF LIVING IN FLORIDA
Before we dive into the tax benefits of living in Florida, more than ever, currently, it is crucial that you establish your residency. The severity of the COVID-19 pandemic impact on the economy has yet to unfold. In April 2020, unemployment rates were the highest since the great depression, 14.7%. (Bureau of Labor Statistics, as cited on TheBalance.com) The unemployment rate in October 2021 was at 4.6% which, for some, illuminates a potentially more optimistic future for the U.S. Economy.
Still, many State Governments are operating under a deficit created by the past year and a half of unemployment and independent, small businesses closing down or struggling to stay afloat due to capacity and hour regulations. Plus, many remote workers are relocating or living nomadically. Therefore state residency audits have increased with more vigor and fewer concessions. For those with multiple homes in different states, to optimize the tax benefits of living in Florida, you must claim the state as your primary residence, where most of your nearest and dearest material belongings are located. If you bounce around a bit between multiple locations, be aware of the statutory residence state taxes. This can be convoluted so in the event of an audit, be sure to keep documentation of your movement and know your state rules.
HOW TO ESTABLISH RESIDENCY IN FLORIDA
| Acquire a driver's license at the Florida Department of Highway Safety and Motor Vehicles
*Be sure to bring: |1. A Social Security Card, W-2, or pay stub |2. Your out of state license |3. Birth certificate or Passport |4. Two Pieces of mail addressed to your FL home
| File your domicile with the local County Clerk's Office
*After declaring residency at the clerk, you have 10 days to change your car registration and 30 days to obtain an FL drivers license
| File for Homestead Exemption, more on this below
*In the event of an audit, there are additional things you can do, such as using Florida doctors, lawyers, and banks, to help prove Florida residency
NO ESTATE OR DEATH TAXES
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. 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. It was created to protect homeowners who hit financial 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. It is important to mention that in addition to the savings on property taxes from Homestead and SOH, the 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.
VETERAN TAX BENEFITS OF LIVING IN FLORIDA
The most prominent tax benefit for veterans residing in FL is the lack of State Taxes, which can be an enormous amount of savings. In addition to federal tax benefits for veterans, and on top of the Florida Homestead Exemption and Save Our Home benefits, Veterans residing in Florida with 10% or more disability may receive a $5,000 deduction on the assessed value of their home. Surviving spouses may also be eligible for the deduction. Completely disabled veterans in Florida who have been honorably discharged may be exempt from paying any taxes on a primary residence. This may also apply to surviving spouses. Depending on income and disability, many veterans may be exempt from paying any real estate taxes. The U.S. Department of Veterans Affairs offers loan programs to assist Veterans in homeownership. Oftentimes VA home loans do not require a down payment or Mortgage Insurance, and rates are extremely competitive.