Are You a Florida Resident?

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Perhaps a better question to ask is “Does the state you left still consider you a resident there”?  Florida is considered a tax-friendly state.  Many people wish to avoid the state income, gift, inheritance, capital gains, or estate taxation imposed by their previous state of domicile.  Others seek the favorable Florida creditor protection laws, including creditor protection for homestead. And others seek the advantage of the “Save Our Homes” cap on property tax increases.  However, those who want the tax advantages without really moving could face problems such as state taxation claims made by the non-Florida jurisdiction and competing probate proceedings after death. 

What is residency/domicile?

Many states define domicile in a way that is inherently subjective and difficult to prove.  There is no universal definition of domicile although the states and the IRS share a general understanding of its meaning which focuses on the intent of the individual.  Florida views your legal residence or domicile as the place where you fix an abode with the present intent of making it your permanent home.  From a Florida standpoint, you need only to prove your residency to the Property Appraiser’s office for purposes of obtaining the Homestead exemption.  The Property Appraiser requires the following proof:

·    A valid Florida Driver’s License or  a Florida I.D. Card if you do not drive
·    Charlotte County voter registration or Declaration of Domicile if you do not wish to register to vote
·    Florida vehicle license plate number for all vehicles

Proving domicile
While Florida’s test is fairly easy, the more difficult test is proving your abandonment of your prior domicile to the taxing authorities in the old state.   The first step should be to review the law of the former state of domicile with a qualified advisor in that state.  Once the advisor has determined the key elements tested in the state you are leaving the next step is to meet as many of those elements as possible.  The elements considered generally include whether the following things were done:

·    Purchase or rent a residence in Florida and move in.  If purchasing a home, file for the Homestead exemption
·    Replace as many non-Florida advisors with Florida advisors as possible, not only to prove domicile change but to avoid errors by advisors unfamiliar with Florida law
·    Consult a Florida attorney to have estate planning documents reviewed and changed to reflect Florida laws
·    Declare Florida to be your place of residence in all forms that require recital of residence, such as Social Security Administration papers, passports, contracts, deeds, leases, credit cards, etc.
·    Set up Florida banking and investment arrangements
·    Have all income sources and direct deposits sent to Florida financial institutions
·    Consult with a physician in Florida and have your medical records sent to the Florida doctor
·    Avoid spending significant amounts of time in your former state of residence
·    File Federal Income Tax Returns using your Florida address and mail them to the IRS in Atlanta, GA.
·    Remove contents of safe deposit boxes outside of Florida and move contents to Florida
·    Join social, political and religious organizations in Florida and change your memberships in out of state organization to non-resident status
·    If possible, limit business activities in the former state
·    Have all mail, bills and subscriptions sent to your Florida address

Why it matters
If enough revenue is at stake, an ambiguous domicile may trigger the taxing authorities in the prior state to begin a Residency Inquiry or Domicile Audit.  The flow of money is what peeks the interest of the taxing authorities.  Events that typically trigger an Inquiry are divorce, death, sale of home or business.  The burden of proof generally falls to the taxpayer in these cases to show they have abandoned their prior residence and therefore should not be subject to taxes in the old state.  Defending a Residency Inquiry can cost you or your heirs significant time and money.  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.

Property Tax Relief

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Property Tax Relief!

On January 29, 2008, voters passed Amendment No.1 which significantly changes our property tax exemptions.  The Amendment provides tax relief in a number of ways.

Double Homestead Exemption
The previous $25,000 exemption will now be $50,000 for all homesteads valued over $75,000.  The exemption only partially applies for homes valued less than $75,000.  The new additional $25,000 exemption does not apply to school district taxes but the old $25,000 exemption still does.

Save-Our-Homes portability

If you sell a homesteaded property, you have two years to transfer its Save-Our-Homes accumulated benefit to a new Florida homestead.  Portability allows homestead property owners to transfer up to $500,000 of their Save-Our-Homes benefit to their next homestead.  This provision applies to all taxes.

Up-sizing portability

If the just value of the new homestead is greater than or equal to the just value of the prior homestead, you will be able to take advantage of your accumulated Save-Our-Homes benefit up to $500,000.  For example, if the just value of your current homestead is $500,000 but your assessed value is only $100,000, you have $400,000 of accumulated benefit to take with you to your new homestead.  If you purchase a new homestead with a just value of $700,000, your new assessed value will be $700,000 minus your accumulated benefit of $400,000.   This means that your new homestead will have an assessed value of $300,000.

Downsizing portability
If the just value of the new homestead is less than the just value of the prior homestead, you will be able to take a portion of your accumulated Save-Our-Homes benefit to your new homestead.  For example, if the just value of your prior homestead was $200,000 with an assessed value of $80,000, you would have $120,000 of accumulated benefit.  However, when you downsize into a $100,000 homestead you can only use a portion of your accumulated benefit, in this case $60,000.  As a result, your new homestead will have an assessed value of $40,000.  

Relief for nonresidents and commercial property owners

Rental home owners, second home owners and commercial property owners will also benefit.  The Amendment limits their annual assessment increases to 10%.  This does not apply to school district taxes.  This provision shall take effect beginning January 1, 2009.

Relief for mobile home owners
The Amendment provides a $25,000 exemption from ad valorem taxation for tangible personal property.  If you live in a manufactured housing community where you lease your lot, you are probably paying tangible personal property taxes on your storage rooms, carports and porches.  Amendment No. 1 provides for a $25,000 exemption for the tax on these items which may result in no tax being owed at all.

Relief for business owners
The first $25,000 of tangible property such as equipment, office furniture and computers, will be tax exempt.

Implementation
All of the provisions of the Amendment are effective as of January 1, 2008, with the exception of the 10% provision mentioned above.  A person who establishes a new homestead as of January 1, 2009, or any subsequent year, and who has received a homestead exemption in either of the two years immediately preceding the establishment of the new homestead is entitled to portability.  With regards to portability, the Amendment will also apply to those homesteaded on January 1, 2008, however, the previous homestead must have been relinquished in 2007.

If you have any questions on how the changes will impact you, please consult with your Florida attorney.

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