If you’ve ever dreamed of packing it all up and moving down to Florida to enjoy the year-round sunshine and miles of beautiful beaches, you’re not alone! Each year, thousands of people make the decision to become permanent Florida residents. While some reasons for this are obvious, one of the top reasons we as Florida REALTORS® see this migration can be a bit more complex: TAXES.
Before we get into different aspects of Florida taxation, we just wanted to remind everyone that the Federal Individual Tax Return and Income Tax Payments are due on May 17th, 2021 this year. Some states may even have an extended tax deadline of June 15th, 2021 if you reside in Louisiana, Texas, and Oklahoma. Be sure to double-check your state’s filing deadline!
Income Tax… or the lack thereof.
Whereas state income tax in other areas of the country can vary widely, with some of the highest going above 10% (California, New Jersey, and Hawaii are key examples here), Florida is one of only seven states in the country that does not impose a state income tax. The lack of income tax here in Florida, coupled with the booming job market makes the state a great choice for those who plan to continue to work. Moving to Florida can save someone in a high-income tax bracket thousands of dollars each year in income taxes.
This also includes no state taxes on Social Security benefits, pensions, IRAs, 401(k)s, and other retirement income– meaning, Florida is exceptionally suited for retirees as well! The extensive 55+ community options throughout the state combined with the possibility of saving thousands of dollars in taxes each year in comparison to other states truly sets Florida apart for those looking to retire in peace.
The Florida Constitution includes a provision against collecting individual income tax, which would require a constitutional amendment in order to change. This same constitution prevents counties and municipalities from imposing any sort of income tax at the local level– meaning these tax structures are not likely to change any time soon. If you’d like to review Florida’s Constitution, you’ll find a digital copy here.
Estate or inheritance tax? Not here.
At one time, Florida used to collect an estate tax. However, changes made at the federal level phased out this provision as of 2005. While other states took steps to ensure the revenue generated from this tax continued, Florida was not one of them. Currently, Florida does not have an inheritance tax or estate tax (which is also commonly referred to as a “death tax”), making the state an attractive option for wealthy individuals looking to reduce their tax liability.
The Florida Constitution, mentioned above, prohibits this tax as well, meaning that the state legislature cannot enact an estate or inheritance tax that conflicts with the current state constitution. Florida voters would need to amend the constitution in favor of this tax, which would require a 60% voter approval in order to move forward– something not likely to happen in the foreseen future. However, it should be noted that federal estate tax is still in place for the taxable estate of every decedent who is a citizen or resident of the US. The federal estate tax rate starts at 40% as of 2020.
Property Tax? Yes, but lower than average!
No surprises here– Florida’s average property tax rate is just below the US average at 0.83% according to SmartAsset. On average, the typical Floridian pays 0.98 percent, while the average American pays 1.08 percent. In Marion County, Florida, the average homeowner pays roughly $1,177 each year in property taxes at an average rate of 0.99%. In comparison, New York’s average property tax rate is 1.69%, while New Jersey’s is even higher at an average tax rate of 2.42%.
If you currently live in the Northeastern United States, Florida property tax rates can offer a break for your wallet in comparison to what you currently pay. However, keep in mind that if you’re planning to upgrade to a larger home or for larger acreage when moving to Florida, you may end up paying roughly the same amount in taxes as you have on a smaller home in the NE region of the US.
A nice bonus for eligible Florida homeowners.
As we’ve previously stated in our Homestead Exemption blog from 2020, the homestead tax exemption incentivizes Florida property owners to actually live in Florida– not just own a second property here. Coined during the Great Depression when many residents were in danger of being unable to pay property taxes and thus losing their homes, the 1933 Homestead Exemption Amendment initially applied towards the first $5,000 of a homeowners residence.
Today, homeowners can receive an exemption that reduces the taxable value of your home as much as $50,000. This exemption is offered based on your home’s assessed value, and offers exemptions within certain value limits. In addition, your assessed value can’t increase more than 3% annually once you’ve been granted a homestead exemption.
Keep in mind there are firm requirements for eligibility. To check your eligibility and see how this exemption can be used, take a look at this overview provided by the Florida Department of Revenue.
Becoming a Florida Resident– A Look at the Process
Those who maintain a second residence in Florida (a term colloquially known here in Florida as a Snowbird) are not automatically able to take advantage of the state’s tax deductions. You’ll need to prove that you spend half of the year or more in Florida– a minimum of 183 days per year. Tax auditors won’t just take your word for it, either, so expect to do a little bit of legwork to get everything in order. As with any between-state relocations, make sure you are taking the proper steps to establish residency correctly right from the beginning:
1. File a formal Declaration of Domicile with your local county court.
2. Obtain a valid form of Florida identification within 30 days of your Declaration of Domicile.
3. Register and insure your vehicles– and make sure you’re familiar with local insurance requirements, as they may be different from your previous state!
4. Register to vote or update your previous voter registration.
5. Open a local bank account, or transfer at least one out of state account to your local institution.
6. Notify tax officials by downloading and filling out Form 8822 to indicate your change of address, or simply use the new address on your next tax return.
7. File your homestead exemption if applicable.
8. Update your estate plan, as Florida differs from other states in regard to power of attorney laws, and who is eligible to inherit your primary residence. Always seek guidance from a Florida attorney, accountant, and financial adviser to ensure you’re covering all bases.
Other things to consider– Apply for a library card with your local library. Shop locally to establish credit records in your new area. Establish a relationship with a local health care provider to make sure you have a plan in case of health emergencies. If you are a member of an organization update your membership to a Florida chapter. Consider voting in local elections after transferring your voter registration to solidify your commitment to your new community. There are many different ways you can establish residency— you may not even realize routine tasks can also contribute to validating your residency.
Overall, Florida is commonly considered as one of the most tax-friendly states in the country! Of course, it’s always best to verify all tax information and how it could potentially affect you with a trusted accountant, CPA, and attorney depending on the type of tax questions you may have. If you’ve been considering a relocation to the area, or have already begun searching for the perfect property for you needs, we suggest getting in contact with one of our talented and knowledgeable local REALTORS®. Our team can help you with any questions you have about the area, or help you in finding the perfect property for what you’re looking for.
Have more questions about Ocala and more of Central Florida? Take a look at our Discover Ocala blog category for a look at local events, neighborhoods, residents, and more! Thinking of retiring to Florida, be sure to read our Guide To Buying Home in A 55+ Community.