As the leaves change color and the nights turn cooler, some of our clients will head south to Florida for the winter. At Cipparone & Zaccaro, P.C., we often get calls on the benefits and costs of changing domicile to Florida.
To begin, it helps to understand what we mean by “domicile.” A person may have more than one residence but can only have one domicile. A person’s domicile is his or her permanent residence or the place that he or she treats as home.
Domicile controls where a person pays state income taxes and state estate and gift taxes. For that reason, the tax authorities in each state in which an individual has a residence may claim their state as the individual’s domicile.
Let’s compare Connecticut and Florida taxes. Florida has no income tax and recently repealed its intangibles tax. Florida has a sales tax of 6%. Florida has no estate or gift tax. Florida counties, municipalities, and water, fire and school districts levy ad valorem taxes on real property. The County Property Appraiser assesses real property as of January 1 of each year. The millage rates differ by county and municipality. For instance, in Broward County, the top 2007 total millage rate is 22.6124 but in Miami-Dade County the top rate is 25.0263. Counties levy ad valorem taxes by multiplying the value of real property times the millage rate and dividing by 1,000. Homesteads receive special protection in Florida. All homes valued at $75,000 or more receive a $50,000 homestead exemption from assessment. The “Save Our Homes” Florida Constitutional Amendment limits increases in homestead tax assessments to 3% of the assessment for the prior year or inflation, whichever is lower. To qualify for the homestead exemption, a person must hold legal title to the homestead and reside in it as his or her primary residence by January 1 of the tax year. When a change of ownership occurs on homestead property, the property is re-assessed to fair market value, setting a new floor for the assessment cap. The County Property Appraiser’s office accepts homestead exemption applications up to March 1 for the January 1 assessment of that tax year. Given the increase in value of Florida real property, the homestead exemption assessment cap provides the strongest motivation for snowbirds to change their domicile to Florida.
By contrast, Connecticut has an income tax with a top rate of 5% and a 6% sales tax. Connecticut has estate and gift taxes for individuals who have a taxable estate exceeding $2,000,000. Like Florida, towns levy real property taxes by multiplying the value of real property times the mill rate and dividing by 1,000. For instance, Waterford has a mill rate of 16.86 for real property on the Grand List of 10/1/07. A $500,000 home would incur a real property tax of $8,430. Connecticut has no homestead exemption or assessment cap. Connecticut towns have small assessment exemptions for elderly homeowners, veterans, blind and permanently disabled taxpayers.
Given the higher tax rates in Connecticut, does it make sense to change one’s domicile to Florida? It all depends on each person’s financial situation and willingness to make Florida a permanent home. For instance, if a person has less than $2,000,000 of property, a small Florida home or condominium, and less than $100,000 in annual income, there is no compelling tax reason for changing domicile to Florida. Making Florida a permanent home would require spending more than 183 days each year in Florida, changing drivers licenses, car titles, and voter registration, and moving family heirlooms and other valuable tangible personal property to Florida. If such time and effort has no appeal or appears infeasible, Florida domicile may not make sense.
For those who wish to change domicile, Connecticut Department of Revenue Services Form C-3 provides a helpful checklist for claiming Florida residency for income tax as well as estate tax purposes. It sets forth all of the criterion that the State uses to judge whether a person is a Florida resident. The State examines real estate ownership, tax return filings, employment and business records, estate planning documents, lawsuit papers, worship location and club affiliations, safe deposit box locations, drivers licenses, voter registration, hospital and doctor bills, burial place, the location of the bank receiving social security deposits, the location of family members, the days spent in each state, and the filing of a Florida domicile declaration.
If you are considering changing your domicile to Florida, discuss it with family members and professional advisors (including us). Such a decision can have long-term consequences for you and your family.
Joseph A. Cipparone, Esq., CFP®, wrote this article. Mr. Cipparone serves on the Executive Committee of both the Estates & Probate Section and the Elder Law Section of the Connecticut Bar Association. No taxpayer can avoid tax penalties based on the advice given in this newsletter. This information is for general purposes only and does not constitute legal advice. For specific questions related to your situation, you should consult a qualified attorney.