Perks of Domiciling in the Sunshine State
By Kim Ciccarelli Kantor, CFP®, CAP®; and Jill Ciccarelli Rapps, CFP®
The sunshine, soft ocean breezes and lower taxes make Florida a popular place to live. Generally speaking, Florida domicile carries tax advantages over domicile in other states – with respect to income taxes, state estate taxes and homestead.
A person may have several residences at the same time, but in theory may be domiciled in only one place at any given time. The term “domicile” refers the place where you have your fixed, permanent home for legal purposes.
Domicile is a matter of intent that requires a serious commitment in lifestyle and the ability to break ties with your old state.
Considering Florida Domicile?
Many auditors consider five primary factors when considering domicile: home, active business involvement, time, important items and connections.
- An auditor may consider the size of your home in the old state in comparison to your state of domicile. For this reason, you should keep a record of any change of address forms.
- For a business, an auditor would determine your control, supervision and overall role in the business, as well as your pattern of activity (or non-activity, if the business is a passive investment).
- With respect to time, an important factor is the number of days spent in your old state versus the state of domicile. Your timing and duration of visits play an important role in determining your intent.
- Items that are near and dear to you should be kept in your domiciled state. Receipts and documents showing the transport of these items could be important to keep. Anything that has strong sentimental value, including family picture albums, should also be kept at your domiciled residence.
- Other associations, such as banking/investment relationships, various registrations and church affiliations, should also be maintained in your state of domicile. Be careful! Even a seemingly small affiliation with your previous state of residence could wreak havoc.
A Tax Break Paradise
Another benefit to establishing domicile in Florida is the state homestead exemption. The law largely protects your primary residence from creditors, gives you a credit against your home’s assessment (for tax purposes), and caps your property taxes to either 3% or the current rate of inflation – whichever is less.
In addition, the “portability” provision of the Florida homestead exemption allows you to move up to $500K of the “Save Our Homes” benefit from one Florida home to the next. Florida homestead may also protect your spouse’s inheritance with a life estate – or a 50% interest in lieu of the life estate – unless your spouse waives these rights.
To qualify for the homestead exemption, you must have declared Florida as your state of domicile as of January 1 of the current year. If you qualify, you can apply for the exemption and file with your county’s property appraisal office. Although the 2016 deadline for filing the exemption has passed, you can apply for 2017 exemption until March 1.
Lastly, domicile should be considered not only from a tax perspective but also from an estate planning perspective: in other words, the rights of your spouse and children upon your death. An advisor who is well-versed in the process of new domicile can provide you with a complete package of instructions and discuss planning opportunities to help you effectively implement your decision to domicile.
If you are considering a change of domicile to Florida, it is important to discuss the advantages and disadvantages with your financial advisor, CPA and attorney.