3 minute read 11 Nov 2020
EY - Woman jogging on beach

Changing state residency: tax considerations when moving to Florida

Authors
Augusto Oliveira

Principal, Financial Services, International Tax and Transaction Services, Ernst & Young LLP

Experienced tax professional. More than a decade helping global institutions and private clients with international tax structuring and fund management.

Seda Livian

EY Americas Financial Services EY Private Tax Leader

Passionate about making a difference for my clients, my teams, our firm and beyond. Lucky to love what I do at a firm that supports me as a working mom and offers the proper work-life balance to excel

Brian Schad

Managing Director, EY Private Tax, Ernst & Young LLP

Enjoys spending time with his children. Also enjoys reading about US and UK history and watching baseball.

Shawn Smith

EY Americas Financial Services Tax Managing Partner

Passionate about tax transformation and innovation within the industry. Enjoy spending time with my family, reading and traveling.

3 minute read 11 Nov 2020

Many individuals and businesses are moving to Florida to take advantage of the significant state income tax advantages.

In brief

  • South Florida is on its way to becoming a financial hub — as it also strengthens its position as the gateway to Latin America.
  • The savings from moving to Florida could be as much as 13.30% on taxable income — on top of lower property.

With the influx of new and younger residents migrating to the state, and the inflow of hedge funds and private equity firms in recent years, South Florida is on its way to becoming a financial hub — as it also strengthens its position as the gateway to Latin America.

While Florida was traditionally seen as a place to move after retirement, many individuals and businesses are moving during their high earnings years to take advantage of the significant state income tax advantages. The first influx of non-retirement-age individuals and business owners was spurred on by the significant limitation on deductions, for federal income tax purposes, of state and local income taxes (and property taxes), as introduced in the Tax Cuts and Jobs Act of 2017.

More recently, many individuals developed a new perspective on the flexibility of the future work environment. Specifically, the recent COVID-19 pandemic has caused people to leave high-risk urban areas where social distancing may be challenging and social unrest is a concern. With a new “work from home” mentality, many have decided to relocate to Florida.

Comparison of key tax rates

Specifically, the information below will focus on key personal, estate and property tax rates in certain states compared with Florida.

EY - Comparison of key tax rates

Key tax considerations in Florida

  • No state or local income taxes.

The introduction of such taxes would require amendments to the Constitution of the State of Florida.

  • No state estate tax.

The state estate tax for family inheritance in the Northeast can be significant, compared with the lack of state estate tax in Florida.

  • Lower property tax.

Home and property values are generally lower in Florida, which could result in a $2,000,000 assessed value being a bargain from a property tax perspective.

Potential tax savings moving to Florida

EY - Short term tax savings year one
Example

If you are a high-income earner who makes approximately $2,000,000/year, the figures at left may be approximate state income tax savings by moving to Florida.

Now assume that same individual above moves to Florida and earns income for 10, 20 or 30 years. The below graph estimates the total income tax, property tax and estate tax cost (assuming an estate of $50,000,000 in each scenario) over these time periods.

For simplicity, we have ignored the growth of assets available from the overall tax savings, but saving anywhere from $130,500 to $224,000 per year and reinvesting that money would lead to substantially more assets for the taxpayer and his or her family.

EY - Long term tax cost
  • The difference of 10 years of income taxes and property tax as well as the potential state estate tax reaches almost $7,000,000.
  • At 20 years, the difference can be in excess of $10,000,000.
  • At 30 years, the difference can be almost $13,000,000 (again disregarding growth on the saved taxes).

How to ensure a smooth move

Ending tax residency in a state

In the current environment, we’re seeing additional scrutiny in high-tax states that have lost population, especially in the case of high-income leavers. It is critical to ensure that you properly end tax residency in the state you’re leaving.

There are several objective and subjective residency criteria that should be taken into account in light of your specific circumstances. In order to ensure a smooth move to another state, certain elements must be carefully considered:

  • Keeping a residence in the state you’re leaving
  • Time spent in the state you’re leaving
  • Voting rights
  • Driver’s license
  • Children’s school
  • Updating wills and trusts
  • Changes in lifestyle
  • Business environment: lower cost of operations, business taxes

Summary

Not only are there tax benefits for your personal financial situation, but there are also advantages to consider for your business:

  • Lower business/corporate taxes
  • Reduced cost of operations
  • Diversity of talent
  • Economic and consumer growth
  • Real estate costs

About this article

Authors
Augusto Oliveira

Principal, Financial Services, International Tax and Transaction Services, Ernst & Young LLP

Experienced tax professional. More than a decade helping global institutions and private clients with international tax structuring and fund management.

Seda Livian

EY Americas Financial Services EY Private Tax Leader

Passionate about making a difference for my clients, my teams, our firm and beyond. Lucky to love what I do at a firm that supports me as a working mom and offers the proper work-life balance to excel

Brian Schad

Managing Director, EY Private Tax, Ernst & Young LLP

Enjoys spending time with his children. Also enjoys reading about US and UK history and watching baseball.

Shawn Smith

EY Americas Financial Services Tax Managing Partner

Passionate about tax transformation and innovation within the industry. Enjoy spending time with my family, reading and traveling.