More snowbirds are expected to make a permanent move as the curbs on state and local tax deductions are starting to be felt.
The Tax Cuts and Jobs Act of 2017 clamped a $10,000 limit on the amount of state and local taxes – including income and property taxes – that joint filers can deduct from their income for federal taxes.
Financial planners say that as high net-worth taxpayers finalize their 2018 returns to meet the October tax-extension deadline, they expect many residents of New York, New Jersey, California and other relatively high-tax states will decide to spend more time in Florida, Texas, Nevada or other states that don’t collect income taxes, or move there outright.
People are just starting to see the the effect and over the coming months more are going to be looking to establish Florida residency.
Leaving state income taxes behind can be more complicated than it might seem. States all have their own rules about what makes someone a resident subject to their taxes. For example, if you run a business in New York, or your minor children go to school there, the state can rule that you’re a New York resident for tax purposes, even if you live most of the time in another state. In some cases, the question of tax residency can come down to seemingly minor issues like where you keep your wedding pictures, an indicator of which house is truly your home.
States with income taxes don’t want to lose that revenue, and will investigate to make sure people who have stopped paying state income tax have done so legitimately.
Catherine Frank, executive director of the North Carolina Center for Creative Retirement, suggests one solution for people who own homes in two states: Move full time to the lower-tax state. It’s simpler than figuring out how to split time between two homes without running afoul of the higher-tax state’s rules, and it cuts down on living expenses.
“It’s always interesting to me that people do all that to save on taxes, and then they maintain two homes,” Ms. Frank says. “That’s a pretty expensive way to live.”