It's common for states to raise their tax rates when they're struggling to collect revenues. Some states with no income taxes have high sales taxes, and some states that have income taxes collect state death taxes as well.
Individuals are often looking for ways to minimize their tax obligations. It can provide a huge incentive for individuals to look for a more desirable and less taxing place to call home when these taxes start adding up—someplace like Florida. The state offers a few other benefits as well. Florida's homestead exemption is said to be one of the best in the country.
Florida Has No Income Tax
Florida is one of only seven states that doesn't 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 won't be imposing a tax anytime soon. A constitutional amendment would be required to change this provision.
The state's constitution also prevents counties and municipalities from imposing any sort of income tax at local levels as well.
There's 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.
Moving to Florida from a state like Massachusetts could save a family considerable money when a loved one dies.
Asset Protection Benefits
You shouldn't 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 can't claim your home to satisfy a debt unless it's the mortgage lender who holds the property as collateral for the loan. There's 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're not also contractually liable for the loan. Your sole creditors can't 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.
A tenancy by the entirety is a form of property ownership reserved for spouses.
Property Tax Benefits
You'll also receive two property tax breaks if you buy a home in Florida and declare that the residence is your primary "homestead."
First, you'll receive an exemption for the first $50,000 of your home's value for property tax purposes, except for school district taxes which only receive a $25,000 exemption.
There's also the Florida "Save Our Homes" cap on annual assessments. The cap 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.
Thanks to the Save Our Homes cap, the assessed value of your homestead for property tax purposes can't increase on an annual basis by more than the change in the CPI, or 3% if the change in the CPI is more than 3%.
The change in the CPI is 2.3% in 2020, so the 2020 assessed value of a homestead residence can't increase by more than this amount. It's 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.
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'll 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.
Top Wealth Strategists
Florida is such an attractive state for the wealthy to call home that it's also home to many top wealth strategists, tax advisors, and estate-planning attorneys. These advisors are creative and proactive in assisting their clients with growing wealth, minimizing taxes, avoiding probate, keeping clients' final wishes private, and creating an ongoing legacy.
Should You Become a Florida Resident?
Becoming a Florida resident is not difficult or complicated. It's just a matter of taking some basic steps. The most difficult part would most likely be cutting ties to your former state of residence to convince that state's revenue department that you're no longer living there. If you're not living there, you can't 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.