Each fall, Northeasterners head south to Florida, seeking to escape winter’s chill as well as hefty tax bills from states like New York and New Jersey. Indeed, Florida’s attractive tax laws—which levy no state income or estate tax on individuals—draw many retirees looking to preserve wealth. While the financial benefits of establishing domicile in Florida can be significant, mitigating the tax bill from your state of origin can be challenging. To make a compelling case to the tax authority, each action you take should reflect your intention of making Florida your new home.
High income and estate tax states such as New York are loathe to see potential revenue migrate out of state. They can be diligent in their pursuit of former residents, particularly those that maintain ties there. When it comes to determining domicile, the crux of the issue is whether you moved to a new state with a sincere intention of making it your permanent home. Changing your voter registration, driver’s license, vehicle registrations and billing addresses are steps in the right direction of establishing a new domicile (see Checking the Boxes: Tips for Establishing Florida Domicile, below), but they are secondary to deeper issues that get to the heart of your intent to establish a new home base. To mitigate incurring a tax liability from your state of origin, it is helpful to be mindful of the following factors, which are often considered when verifying your domicile change. It is important to note that the below factors are a merely a guide on how tax authorities have viewed issues relating to domicile and it is very likely that the relevant state tax authorities could focus on one factor more than another.
1. Time on the Ground
You may establish a residence and spend significant time in Florida, but if you spend more than half the year—or 183 days—in a different state, such as New York or New Jersey, and maintain a home there, you can be considered a resident for tax purposes. It is important to note that, with a few exceptions, partial days in the state count as full days toward your total. In the event you are asked to verify your whereabouts on certain days, it can be advantageous to maintain a log of the dates that you are in each state, and be prepared to furnish flight reservations, cell phone bills, gas station receipts, credit card receipts and other records.
2. Maintaining a Florida Residence
Owning or renting a home in Florida can help establish domicile, but maintaining a “permanent” home in your previous state of residence generally triggers the 183-day rule referenced above and can be a red flag for the tax authority. It is helpful if the residence you maintain in your former state is smaller in size than your Florida home. It is also important to show that you have “abandoned” the home in your former state for your new residence in Florida. Moving furnishings, artwork, family heirlooms and other cherished possessions, such as family photos or collections, to your Florida residence is one way to demonstrate abandonment. It can be useful to keep documentation from the move, whether it is an itemized receipt from a moving company or insurance purchased to cover the items during the move, to demonstrate your intent to make Florida your permanent home. Further, making subsequent large purchases—cars, boats, artwork—in Florida may also lend credence to your domicile claims. When making travel arrangements, leaving from and returning to Florida can demonstrate that you have made it your permanent home.
3. Business Activities
Continuing to work in your former state, whether it is as an employee or as a business owner, can jeopardize your change of domicile. There are no hard and fast rules to follow, and the tax authority has some leeway in determining if there was an intent to change your domicile. For example, if you move to Florida but keep your job in New York and travel there frequently to work in your company’s office, even if you are not in New York often enough to trigger the 183-day rule mentioned earlier, New York State may consider you a resident for tax purposes. If you own a business, selling it may be the simplest solution, but it may not be realistic and is not required. Demonstrating a passive interest by ceding control, extricating yourself from day-to-day operations and lowering your salary can be helpful.
4. Family Ties and Community Involvement
Many times, people will replace a family home in their original state with a smaller home there, then purchase a primary residence in Florida. If you maintain ties to a community in your former state, however, whether your children and grandchildren continue to live there or you see friends or attend religious services when you are in town, the state tax authority may question whether you have truly “abandoned” the state. Cutting ties, where possible, from groups in your old state (for example, cancel club memberships and resign from positions in the community) and cementing new relationships that demonstrate that you are engrained in your Florida community could be helpful. Examples can include joining a country club, establishing ties to a religious institution and attending services there, becoming an active member of a neighborhood association, performing charity work or joining and attending a gym. Hosting family gatherings in Florida whenever possible can also help solidify your case.
States such as New York can be aggressive in their pursuit of former residents. To help establish your Florida domicile, there are a few hard-and-fast “must-dos” and a long list of smaller “should-dos.” Remember that it’s not just about moving to Florida, it’s about establishing it as your new home. Because there’s an element of judgment involved in determining domicile, it’s important to do what you can to create a compelling picture of your new life as a Floridian for the benefit of the state tax authority.
Checking the Boxes: Tips for Establishing Florida Domicile1
- File a Declaration of Domicile in Florida if you maintain residences in two states, and file it with the tax authority in your former state
- Apply for a Florida driver’s license and surrender license issued by your former state
- Title and register vehicles in Florida
- Register to vote (and vote) in Florida, and have your name stricken from the voter’s roles in your former state
- Apply for the Florida Homestead exemption (if you own a home)
- File federal taxes in Florida using your Florida address
- Change your address of record on all credit cards to Florida and receive all bills in Florida
- Move safety deposit boxes to Florida
- Change accountants and lawyers and update estate planning documents to reflect Florida residency, including executing Florida advanced directive, living will, designation of health care surrogate, nomination of pre-need guardian and power of attorney; execute documents in Florida
- Transfer accounts to Florida institutions
- Have Social Security checks deposited in Florida bank accounts
- Notify insurance carriers that your new domicile is Florida
- Change doctors and forward medical records to new Florida medical professionals
Special Considerations for New York State Property Holders
If you are domiciled in Florida and own property in New York State, under certain circumstances your heirs may be subject to New York estate tax. New York estate tax applies to “real” or “tangible” personal property held in the state by nonresidents, as well as to certain gifts made after April 1, 2014, while a New York resident. While a house and a condominium apartment qualify as real property and are subject to New York estate tax, a cooperative apartment is considered “intangible” property and would not be subject to New York estate tax. If the value of your New York real and tangible personal property (and applicable gift addbacks) exceeds New York’s exemption amount (currently, $4,187,500), a New York estate tax may be due. There may be ways to mitigate the potential estate tax burden on your heirs of owning New York property if you plan in advance. Speak to a tax or estate planning professional to discuss your situation in depth.
