This article is the first installment of a three-part series by Art Gibbs that will examine the benefits of establishing your domicile in Florida and what steps must be taken to do so. The first installment will explore the tax benefits of being domiciled in Florida. The second installment will discuss how to sufficiently cut ties to Ohio to minimize or eliminate paying state income tax, including how many days you may spend in Ohio each year. The third installment will discuss the steps to take to establish your domicile in Florida.
Many of our clients in Ohio purchase a second home in Florida and reap the immediate benefits of warmer weather. At some point, they all ask, “Are there advantages to becoming a resident of Florida?” Without hesitation I tell clients that in addition to improving their golf game, they will pay less in real estate taxes and personal income taxes.
One of the biggest financial benefits of being domiciled in Florida is that Florida does not have a State income tax for individuals. This can result in a significant tax savings for those individuals with higher incomes that would be subject to income taxes in Ohio. Because Florida does not have an income tax, a significant portion of its revenue is generated by sales and use taxes, as well as taxes levied on tourists. Florida’s sale and use tax is comparable to Ohio’s sale and use tax.
Both Florida and Ohio do not impose an estate tax upon the death of an individual domiciled in such state. Prior to 2013, Ohio did impose estate tax upon the death of an individual domiciled in Ohio, as well as on real property located in Ohio even if the decedent was not domiciled in Ohio at the time of death. Ohio repealed the Ohio estate tax in 2013 and lowered the personal income tax rates in an effort to slow the “migration” to Florida and keep more individuals in Ohio.
There also are significant benefits if you own a residence in Florida and it is your primary residence. Every County and municipality in Florida collects real estate taxes. For those individuals domiciled in Florida, there exists a Homestead Tax Exemption (“Exemption”). This Exemptions allows for a $50,000 reduction of a property’s assessed valued, resulting in yearly savings on real property taxes.
Another significant financial benefit provided to those who qualify for the Exemption is the “Save Our Homes” (“SOH”) amendment to the Florida Constitution. The SOH amendment limits the annual increase in assessed value of real property to 3% per year. The individuals whose real property qualifies for the Exemption are able to avoid significant annual property tax increases in the event property values in Florida skyrocket.
In addition to the tax benefits of the Exemption, it also provides protection from creditors. A person’s Florida homestead is protected from third-party creditors and a Court cannot force a sale to satisfy a creditor’s claim. In order to qualify for this type of protection, the property must be used as the owner’s primary residence. If the property is located outside a municipality, the area of the homestead is limited to 160 acres of contiguous land. If the property is located within a municipality, the area of the homestead is limited to a one-half acre of contiguous land.
In order to qualify for the Exemption, you must apply either in person, by mail or on-line. Florida law requires that the application be made by March 1st in order to qualify for the tax year. Proof of residency is required at the time of application, including a valid Florida driver’s license, proof that you (or your spouse) do not receive a residency based exemption or tax credit in another State, and proof that at least one vehicle is registered in Florida.
If you are considering purchasing real estate in Florida, or if you already own a residence in Florida, please contact us to discuss the steps you need to take to establish your domicile in Florida and to place the Homestead Exemption on your residence.
We invite you to read other articles in this Estate Planning Series:
- Establishing a Domicile in Florida:
- Estate and Gift Tax Reform:
- Undue Influence:
This article provides an overview and summary of the matters described therein. It is not intended to be and should not be construed as legal advice on the particular subject.