Relocating to Florida
Make the most of your Florida residency
Are you planning to relocate to Florida and make the state your primary residence? While the positives are well-known, Florida’s home ownership laws are complex. Without proper planning, you could be faced with a host of potential surprises and pitfalls to navigate.
Are you planning to relocate to Florida and make the state your primary residence? While the positives are well-known, Florida’s home ownership laws are complex. Without proper planning, you could be faced with a host of potential surprises and pitfalls to navigate.
Besides a warmer climate and wealth of leisure activities, Florida offers a number of potential benefits, including:
- No state income or estate taxes
- No state income tax on trusts
- Strong creditor protection laws, particularly with respect to homesteaded property and property married couples hold through tenancy by the entirety.
However, Florida law has some unique characteristics that can create both traps for the uninitiated and planning opportunities for others. Let’s look at a fictional scenario and then address just one of the common—and potentially costly—surprises that a Florida homeowner may encounter.
Meet Parker and Dylan
Married couple (second marriage for both) Parker and Dylan have decided to make Florida their permanent residence. Parker already owns a second home in Florida, but with his minor child (they have two other adult children) leaving for college, he and Dylan have decided to sell their home in a high-tax state and relocate permanently to Florida.
As a first step, they want to establish their new home in Florida as their domicile. They also are looking to apply for a homestead exemption with the idea of limiting property taxes on the property Parker already owns—known as “homesteading” a property.
To homestead or not to homestead
In some situations, such as in Parker’s case, applying for the homestead exemption can lead to an unexpected increase in an individual’s property tax bill. This is because the value of the home at the time Parker applies for homestead could be considerably higher than it was when Parker purchased the property years ago.
When you apply for a homestead, the home’s value is assessed at its current “just value,”which is likely to be higher than its assessed value at the time you purchased it. This can run contrary to the idea that homesteading a property limits property taxes.
Evaluating options
However, another Florida property tax benefit caps the increase in property taxes on non-homestead real estate at 10% of the assessed value per year.1 This includes vacation homes, secondary residences, rental properties, commercial properties, and vacant land.
Like Parker, if you eventually decide to apply for the homestead exemption, your home’s initial assessment will be at its current “just value” (or the value without the benefit of the 10% cap), and you will give up the accrued 10% cap benefit built up over prior years of ownership before homesteading. Given the sharp appreciations in Florida’s real estate market in recent years, this loss of the 10% cap can be substantial.
Planning is key
As the example above illustrates, it’s important to have a plan in place before you make Florida your primary residence. Qualifying for homesteading entails meeting a list of requirements that you should be aware of prior to kicking off the process. For example, you must be legally domiciled in Florida and must be a natural person, which means a revocable trust qualifies but not an LLC.
This is only one of several planning pitfalls and opportunities to consider. We highly recommend seeking expert advice and counsel so that you can ensure that you are able to navigate Florida’s particular laws in a way that serves your long-term goals.
Dive deeper
For more information about Florida domicile opportunities and pitfalls, download Planning surprises and opportunities when relocating to Florida. Connect with a ۶Ƶ Financial Advisor to learn more about planning services available to you.
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