Should You Become a Florida Resident?
Becoming a Florida resident is not difficult or complicated. It is a matter of taking some basic steps. The most difficult part would be convincing your former state’s revenue department that you are no longer living there. If you are not living there, you cannot be taxed there. This is particularly important for someone who continues to maintain a home or a business in another state while residing in Florida.
Florida offers an exceptional incentive for people looking for a better quality of life, and a less taxing place to call home. The state offers a few other benefits as well. Florida’s homestead exemption is one of the best in the country.
Florida Has No Income Tax
Florida is one of only seven states that does not collect an individual income tax. The other six are Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming. Moving to Florida from a state like New York can save someone in a high-income tax bracket many thousands of dollars each year in taxes.
The prohibition against collecting an individual income tax is part of the Florida Constitution, so the state will not be imposing a tax anytime soon. The state’s constitution also prevents counties and municipalities from imposing any sort of income tax at local levels as well.
Florida Has No Estate Tax
Florida used to collect a state estate tax in the form of a “pick-up tax,” but changes in federal law phased this provision out in 2005. Many states took steps to keep the state death tax revenues flowing through a process known as “decoupling,” but not Florida. The state’s constitution also prohibits the imposition of a state estate tax.
Florida Has Asset Protection Benefits
You will not have to worry about losing your assets to a creditor or in a lawsuit if you live in Florida. The state offers many asset protection benefits, including:
- Homestead creditor protection
- Tenancies by the entirety for real property, as well as for personal property
- Protection of the cash value of life insurance
- Protection for IRAs and annuities
- Protection of assets held in a properly structured business entity
A creditor cannot claim your home to satisfy a debt unless the mortgage lender holds the property as collateral for the loan. There is no constitutional rule against foreclosure.
The state recognizes tenancies by the entirety as well, so this prohibition applies to your spouse’s creditors as well, as long as you are not also contractually liable for the loan. Your sole creditors cannot touch property or assets that are also owned by your spouse. Tenancies by the entirety are a form of joint ownership limited to married partners.
Florida Property Tax Benefits
If you buy a home in Florida and declare that residence your primary “homestead,” you will receive an exemption for the first $50,000 of your home’s value for property tax purposes, except for school district taxes, which receive a $25,000 exemption.
Save Our Homes Cap
The Florida “Save Our Homes” cap on annual assessments is set at 3% or the change in the consumer price index (CPI), whichever is less. The CPI is effectively a year-to-year comparison of prices paid by urban Americans for goods and services.
The change in the CPI is 2.3% in 2020, so the 2020 assessed value of a homestead residence cannot increase by more than this amount. It is less than the 3% cap. The change in the CPI was 4.1% in 2008, but the Florida cap was limited to 3% because this was less.7
This can be a significant bonus if you plan to stay in your homestead for many years. A property’s value typically increases over time, so you will eventually reach a point where its assessed value is more, perhaps significantly more than when you purchased it. Property taxes are a percentage of this value. The Save Our Homes cap effectively lets you build equity each year that will be sheltered from taxes.