This article is the second installment of a three-part series that examines the benefits of establishing your domicile in Florida. The first installment explored the tax benefits of being domiciled in Florida. This installment discusses how to effectively cut your ties to Ohio to avoid the Ohio income tax. The third installment will discuss the steps to take to establish your domicile in Florida.
In my previous article, I discussed the benefits of being domiciled in Florida. In this article, I will examine the steps a person must take to effectively cut ties to Ohio in order to avoid paying Ohio income tax. Every Ohio resident and part-year resident is subject to the Ohio income tax. Additionally, even if a person is not an Ohio resident, income that is sourced in Ohio (such as rental income from property located in Ohio) will be subject to the Ohio income tax. If you are not an Ohio resident, then income from passive investments such as interest and dividends, as well as distributions from retirement accounts, will not be subject to the Ohio income tax.
Beginning in 2007, Ohio has had a “bright line test” for determining a person’s domicile for income tax purposes. As a result of several court rulings, this test was modified in 2018 when Ohio passed legislation to update the guidelines to clarify when a person is treated as an Ohio resident for income tax purposes. A person will be presumed not to be an Ohio resident for the tax year if all of the following requirements are met:
- The person must have fewer than 213 “contact periods” in Ohio (a “contact period” is each time a person is away overnight from his home not located in Ohio and spends at least some portion, however minimal, of each of two consecutive days in Ohio).
- The person must have at least one home outside of Ohio for which no depreciation deduction was claimed under Section 167 of the Internal Revenue Code.
- The person must not hold a valid Ohio driver’s license or Ohio state identification at any time during the taxable year.
- The person did not receive the Ohio homestead property tax exemption or the owner-occupied tax reduction with respect to a tax lien date included in the taxable year.
- The person did not receive resident tuition benefits for an Ohio institution of higher education based on an abode being located in Ohio (the test for in-state tuition applies only to the individual claiming non-residency status, but not to his or her dependents who can receive the in-state tuition based on his or her own residence status).
These rules generally do not apply to any taxable year in which a person permanently moves in or out of Ohio. In that case, the part-year resident allocation continues to apply. If a person with an abode in Ohio does not satisfy the non-residency criteria, then the person will be presumed to be a resident of Ohio for the entire year and subject to the Ohio income tax.
If a person satisfied all the criteria for non-residency, then the person must file Ohio form “IT-NRS-Ohio Nonresident Statement”. This form is to be filed by October 15 of the year following the close of any year in which non-residency is claimed. The form can be filed jointly by spouses, but if only one spouse is claiming non-resident status, then such spouse can file the form individually.
One final note: it is very important that the person not receive an Ohio homestead exemption or Ohio owner-occupied tax reduction. A person must be vigilant in having any such exemption or reductions removed by the Ohio County Auditor’s Office. Not only will Ohio deny non-resident status, but Florida (which routinely checks exemptions placed on Ohio real estate) will deny the Florida homestead exemption and seek to collect back taxes on any prior real property tax reduction based on the Florida homestead exemption.
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.