The rule caps “SALT” or state and local tax deductions at $10,000, when before those deductions were unlimited. Those include real estate, and either income taxes or sales taxes. For wealthy people who itemize deductions, income taxes alone exceed that amount, let alone property and sales taxes. If they also live in a relatively high tax state such as New York or New Jersey, that could make officially declaring Florida their “home” a more attractive proposition because it has no state income tax.
Real estate agents, certified public accountants and other industry professionals say that since the law went into effect, they have seen a flurry of interest from wealthy clients in higher-tax states who are looking at buying homes in South Florida and declaring the state their official domicile. New York has a maximum 8.82 percent state income tax, so tax on any income over $120,000 has already exceeded the $10,000 cap.
It is a boon for Florida in general but definitely the luxury markets and island-type areas which see people that don’t need to be based in New York, and are going to put their full time residence in Florida.
To take advantage of the Sunshine State’s lower taxes they would have to disconnect from their current home state, which isn’t always easy.
Becoming a Floridian is not as easy as buying a home here and declaring it your domicile. A new Florida driver’s license, electing a homestead exemption on a home, registering to vote, and changing your mailing address are among a simple checklist of to-do’s. You have to prove your intent to make (Florida) a domicile.
Owning a home could help prove that intent, but there’s no rule against renting. Though each state has separate requirements, New York generally will claim you as its resident if you have a home there and spend 183 days or more in the state per year. It may also look at credit card statements, the clubs you belong to, where your kids go to school, where your business is located, and other considerations.
If you have homes in two states, there is even an app called TaxBird that tracks your whereabouts and gives you alerts when you are nearing your state “residency threshold.”
Some clients from northeastern states who also have Florida homes are “a little sticker shocked” by the $10,000 cap, but are waiting to see how their own states respond to the new rules, said Julio Barina, a CPA and tax manager with Markham- Norton. “The representatives from New York, New Jersey and California, all high-tax states, are grumbling whether or not they’re going to come up with some sort of work-a-round to this $10,000 rule,” he said.
“When the new law came out in November, we fielded a lot of calls from our high-net worth clients in New York and Massachusetts, in moving or purchasing a home or creating more permanence here in Florida,” said Kenneth Rios, tax partner with CPA firm Kaufman Rossin,”They’re concerned what the impact would be on their personal taxes, and some of them are trying to be proactive and stay ahead of this. Could they move here? Could they move their businesses here?” “I think you’re starting to see a tipping point of CEOs of specifically financial service firms that are looking at the more tax-friendly states.”
Our Vero Beach luxury market has certainly benefited from record sales this season. Contact our RE/MAX Associated office for your “tax friendly” home!