If you’re looking for a desirable, less taxing place to call home, Longboat Key, Florida is one of the best. In addition to great weather and world-class amenities, one of its most attractive characteristics is the lack of a state income tax. It is easily a top choice for those who are interested in Florida residency and saving on taxes. The prohibition against collecting an individual income tax is part of the Florida Constitution. So, the state won’t be imposing a tax anytime soon. The state’s constitution also prohibits the imposition of a state estate tax. Moving to Sarasota, Florida from a state like Massachusetts could save families considerable money.
In addition, Florida offers many asset protection benefits, including protection of cash value of life insurance, protection for IRAs and annuities, and a creditor can’t claim your home to satisfy a debt unless it’s the mortgage lender who holds the property as collateral for the loan.
You’ll also receive two property tax breaks if you buy a home in Florida and declare that residence as your primary “homestead.” First, you’ll receive an exemption for the first $50,000 of your home’s value for property tax purposes. Except for school district taxes, which only receive a $25,000 exemption. There’s also the Florida “Save Our Homes” cap on annual assessments.
Thanks to the Save Our Homes cap, the assessed value of your homestead for property tax purposes can’t increase on an annual basis by more than the change in the CPI, or 3% if the change in the CPI is more than 3%. The CPI is effectively a year-to-year comparison of prices paid by urban Americans for goods and services. This can be a significant bonus if you plan to stay in your homestead for many years. The Save Our Homes cap effectively lets you build equity each year that will be sheltered from taxes.
Becoming a Longboat Key resident is not difficult or complicated. It’s just a matter of taking some basic steps. The most difficult part would most likely be cutting ties to your former state of residence to convince that state’s revenue department that you’re no longer living there. This is important for someone who maintains a home or a business in another state while residing in Florida. It’s important to understand that claiming a new residency is not as straightforward as filling out a document. It’s based on the individual’s “intent” to recognize and maintain a new domicile as their primary or permanent residence.
Many people looking to change their residency are aware of the “six months and a day” rule. Although that determines whether someone is a resident or non-resident, very few states today are still following this rule. This means you will be taxed as a resident if you own a home and spend at least 183 days a year in the state. Recently, there has been a strong trend among states to move away from simply “counting days”. Instead, they are closely examining the intent of the individual to establish a primary and permanent home.
The question of residency doesn’t revolve around Florida law. It is determined instead under the laws of the state you are departing. And it doesn’t end with your financial records. There are myriad financial considerations that may play into what you review, including doctor visits, medical treatments, fitness memberships, affiliations with community organizations, locations of family and holiday gatherings, phone records and devices showing geographic location, and much more.
It’s a good idea, as a proactive measure, to keep a log of where you are during the year. In the event, the tax agency from your northern state picks you for a residency audit. Keeping receipts from the time you spent in Florida will help if you’re audited.
In addition, below are just some basic actions you should take. Keep in mind the burden of proof generally falls to the taxpayer to show they have abandoned their prior residence and therefore should not be subject to taxes in their old state. Accordingly, it is important to properly plan and consult with competent advisors in both Florida and the prior state of residence to assure that your domicile planning will accomplish its objectives.
- Obtain a Florida driver’s license
- Register your vehicles
- Register to vote in Florida
- Use local medical professionals and have your records forwarded to them.
- Update the address on your passport.
- Open local bank accounts
- List your Florida address as your residence for federal income tax purposes
- Apply for the Florida Homestead Exemption
- If a member of an organization, change your membership to a Florida chapter.
- Update Your Estate Plan Florida law will govern your estate planning when you’ve established that you’re a Florida resident, and Florida has some quirky laws with regard to who your personal representative, also known as an executor, can be. Florida law also controls to whom who you can and can’t leave your primary homestead residence. It’s important to use Florida professionals, such as attorneys and accountants, to draft these updated estate documents that comply with Florida law. These professionals will understand the ins and outs of the Florida laws that will affect your estate planning, tax planning, and investments.
Finally – Tell the State of Florida that you’re a resident. File a “Declaration of Domicile” with the clerk of circuit court in the Florida county where you live. (“Domicile” is a legal term that generally means the place that you intend to be your primary and permanent home.) There isn’t a standard, state-wide form that you can use. Instead, each county will have its own version. Auditors will look for any indication that you don’t really think of Florida as your primary and permanent home—don’t give them any ammunition.
