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Update: Florida’s Tax Laws Offer Savings to Those Who Move from the North

Summer 2006Cole Schotz DocketAttorneys: Mary W. Browning and Gary A. Phillips

In our last issue, we discussed the estate and income tax benefits associated with moving to Florida.  Now, Florida has given out-of-state residents yet another reason to move to the Sunshine State.  On April 26, 2006, the Florida Senate passed Bill SB 714, which now is expected to be signed by the Governor, repealing Florida’s tax on intangible assets.  The Florida House passed a similar bill earlier this year (HB 209).

The Florida Intangible Personal Property Tax was an annual tax based on the fair market value of intangible personal property owned by a taxpayer on January 1st of each year.  In general, intangible personal property included property such as stocks, mutual funds and bonds. The tax was imposed on Florida residents, corporations and partnerships.  While the first $250,000 of taxable assets were exempt, assets in excess of $250,000 were taxed at $.50 per thousand dollars of value.

Many Florida residents avoided the tax by transferring their intangible assets to a special type of Trust that was not subject to the tax.  However, due to the repeal of the tax, these Trusts are no longer necessary.

The repeal of this tax gives residents of other States, such as New York and New Jersey, a greater tax incentive to establish domicile in Florida.  However, as discussed in our last issue, great care must be exercised in establishing domicile in Florida to ensure that the correct measures to change domicile to Florida have been taken in order to take advantage of Florida’s many tax benefits. 

It also is important to consider the tax impact a change in domicile would have on the future sale of a taxpayer’s primary residence.  For example, if a New Jersey domiciliary who owns a home in New Jersey establishes domicile in Florida, the New Jersey residence will no longer be considered his or her “primary residence.”  If the taxpayer sells the New Jersey residence in the future, the taxpayer may not be able to take advantage of the $500,000 capital gains exclusion for married taxpayers ($250,000 for single taxpayers) who sell a primary residence.  A residence will be deemed to be a taxpayer’s primary residence if it was the taxpayer’s residence for at least two of the prior five years prior to the sale of the residence.  Thus, taxpayers who move to Florida generally would have three years from the time they change their domicile to Florida, to sell their former primary residence and take advantage of the favorable capital gains exclusion rule.

 

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