Traditionally, the aged and the rich have headed south to avoid the icy winds of winter, flocking to Florida to work on their tans and play golf.
Indeed, by 2014, the population of Florida had burgeoned to exceed that of New York.
It’s not just New Yorkers who are flying south; Connecticut, New Jersey and other Northeastern states, as well as California and Illinois, have fueled the exodus. The richest man in New Jersey, hedge funder David Tepper, packed up his family and moved his business to Florida three years ago, costing the state $100 million a year in lost revenue.
A movement to change residency became apparent beginning with the tax year beginning January 1, 2018. Statistics are bearing out the theory that the wealthy are heading for low- or no-tax states like Florida due to the loss of the ability to deduct state taxes on federal returns.
Florida is enjoying a bonanza due to the change in federal tax law, and advisors need to know about the state’s rules of residency to guide prospective clients contemplating a move. According to NY State and City law, a resident is someone who is domiciled in either. A statutory resident is someone who maintains a permanent place of abode and spends 183 days or more of the tax year in the state. A person can have only one permanent domicile, and New Yorkers who flee need to demonstrate that they have abandoned the NY domicile and established a new domicile elsewhere.
For statutory residency, there’s a two part test. First, the taxpayer must maintain a domicile he/she permanently maintains and has free access to, whether they own it or not. If that condition is met and they are physically in the state for more than 183 days, the person is a statutory resident.
For clients who are considering the purchase of a home in Florida, it’s critical to understand the residency rules to avoid an unanticipated tax bill.
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Where Have All the High-Net-Worth Clients Gone? | Wealth Management