As you well know, on December 22, 2017, Congress passed the most sweeping tax reforms in decades. The new law, known as the Tax Cuts and Jobs Act (TCJA), will have many implications for those in all tax brackets, and in particular, High Net Worth Individuals.
One of the significant changes in the new law, is that state income taxes will only be deductible to the extent of $10,000 combined with your real estate taxes, and no longer fully deductible on your federal return. This means that now may be the best time to consider relocating, (or at least establishing “residency,”) in a state with a lower, or no, income tax.
This gives wealthy Northeasterners an even greater incentive to consider a move to the Sunshine State. Florida, has no income tax, along with states such as Alaska, Nevada, South Dakota, Texas, Washington and Wyoming.
Home Is Where the Heart Is, or Is it?
It has been said that “home is where the heart is”, but to a tax examiner, unfortunately that can have very little meaning. If you are considering relocating to a state such as Florida, now that state tax deductions are limited, it takes a little more consideration than simply buying property there and changing your mailing address.
In casual conversation the words “domicile” and “residency” are often used interchangeably, but from a legal and tax standpoint, domicile has a very specific meaning.
Most state tax authorities define domicile as the place where the taxpayer has his true, fixed, permanent home. It is important to point out that the definition, particularly as used by the State of New York Department of Taxation and Finance, does not necessarily apply to any one specific dwelling, but rather to the place or area he or she “intends to return whenever absent.”
In other words you can have many residences, but from a legal and income tax point of view, a person can only have one domicile, or a “permanent residence” to which you intend to return.
States, and particularly New York, use some very stringent tests and factors to determine domicile.
How MBAF Can Help
Now may very well be the very best time to relocate to Florida, or buy property that may be used to establish residency for income tax purposes. Since MBAF has offices in both New York and Florida, we are particularly well qualified to help you through the nuances of the factors that most states use to determine residency and domicile. So, if you are thinking about relocating to Florida, to ease your tax burden, or to simply escape the winter, our expertise in the domicile regulations of both states, can prevent the tax authorities from casting a dark cloud over your fun in the sun!
Understanding and getting the most out of the tax incentives for relocation to a low-income tax state can be quite complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting specialists, or call us at 1-800-239-1474.