Florida Tax-Haven: Is It All It's Cracked Up to Be?
NEW YORK (MainStreet) End of the year tax planning can be a disheartening task. Some lucky factions of people are left with excess cash on their balance sheets. There are a few common ideas that are always thrown around when talking about excess income. One of them is Florida real estate.
Florida seems like a mythical tax haven for a business owner. It is often sold as a state where the condos range from affordable to luxury, and there is no state income or inheritance tax. Yet how much of Florida's tax facts are myth and how much are fact?
Howard Hammer, a CPA with Fiske & Company, a financial firm in South Florida, broke this issue down from the beginning.
"Getting a tax break in Florida all comes down to being domiciled there," he said. "Domicile" is a term that is used to define the taxpayer's true home.
"A person would have to show that they vote in that state," Hammer explained. "They would have to show they have a driver's license in that state, and that they are in that state more than 183 days out of the year." Additionally, the government looks to see if your heart is in that state. This means a taxpayer is keeping his major possessions in that state such as cars and boats. It's also important if the taxpayer has children that they are attending school in that state. The government will even go so far as to check to see if a person has purchased a burial plot in the state of Florida.
However, for those who are domiciled in Florida the tax breaks are very real. For a person earning $1,000,000 in New York, he would pay $127,000 in state taxes. In Florida, he would pay nothing. There is also no inheritance tax. Hypothetically, if a person had to pass an estate on to a younger generation all his assets could be passed tax-free in Florida. There is also no tax on income earned by a trust either. If a trust is being set up, the fiduciary must be located in Florida.
"The advantage of purchasing a property here depends on the state where you reside," Hammer cautioned. "Be careful with out of state of state properties. Just by being a Florida resident does not make you exempt from taxes in other states."
--Written by Leigh Held for MainStreet