Florida Realtors issued the following announcement on Nov. 1.
Northerners are struggling. They love winter sunshine and low taxes, but a decision to move 1,000 miles to Fla. isn’t easy. Will homesickness set in? How much does a trip “back home” to see family cost? And how much tax savings are we talking about?
Relocating for retirement and trimming the budget line for taxes are among the many tasks pre-retirees and retirees have on their to-do lists. Many people consider checking off both items by moving to a state with low taxes or tax breaks that specifically benefit older residents. And these days, people affected by tax reform’s squeeze on the federal deduction for state and local income taxes (SALT) are feeling increased pressure to make such a move.
No doubt moving from a high-tax state to a low-tax state can produce savings. For instance, a taxpayer in California who pays the top state income tax rate of 13.3% can move to Florida and cut that tax rate to zero.
Yet a quick fix can be much more complicated than it seems. Yes, you’ll improve your bottom line, at least at first. But your overall tax savings may not be as great as you anticipated. Relocate to cities such as Dallas or Seattle and you could find higher property taxes cutting into your expected savings. In Texas, residents pay an average of $1,993 in taxes per $100,000 of assessed home value, which is on the higher end of property taxes nationwide.
And the tug of your old hometown may cost you, too. Will you end up with higher travel expenses weighing down your budget, as you fly back and forth to visit family and grandchildren in other parts of the U.S.? Will you actually be willing to put down roots in your new location, or will your spending increase as you maintain a second house or rental property in your previous home state? If you continue to earn an income in the state you leave behind, you’ll owe non-resident taxes, and you could be penalized if you don’t pay.
You’ll also need to keep on top of financial details that can add to your moving expenses. High-tax states, such as New Jersey and Connecticut, are making it more difficult to leave, imposing tax surcharges or tax prepayments on high-end homeowners who relocate. You’ll need to carefully document the establishment of residency in your new low-tax home state, from enlisting an entirely new network of health care providers to joining a local neighborhood group. Skip those steps and you could face additional taxes and penalties from your old state; authorities in high-tax states can be aggressive about investigating former residents to ensure they actually relocated.
“Paying close to 10% in state taxes was bad enough when it could be deducted. Now it’s even worse,” says Lyle Benson, founder of LK Benson and Co., a Towson, Md., CPA financial planning firm. “But you have to be really committed to changing your domicile, and it can’t just be done for tax purposes. You really have to cut ties with your home state. It can be a balancing act.”
Still, even for retirees in states with modest taxes who aren’t being hit as hard by the SALT deduction cap, moving can be financially beneficial. If you’re living off your IRAs and your pension, “you really get a bump up in pay” by relocating to a state with a lower cost of living, including lower taxes, says Robert Westley, a New York City certified public accountant and financial planner. And clients with sizable property taxes who can only deduct the $10,000 in SALT “are really feeling it,” he says, and considering a move. (See Kiplinger’s state-by-state guide to taxes on retirees.)
For John Lohse, 65, a public defender who lives in Rahway, N.J, the decision to leave his beloved New Jersey came down to a simple but dramatic calculation: Two months’ worth of property taxes alone would cover the property tax for a full year in Florida.
Lohse pays nearly $10,000 a year in property taxes on his New Jersey townhouse, valued at around $300,000. He and his partner are looking at buying a $200,000 to $250,000 home on the west coast of Florida, and they estimate paying $1,200 to $1,300 per year in Florida property taxes. Further shaving their costs, the couple will have no state income tax bill in Florida.
For tax year 2018, the couple’s accountant estimates the couple lost $23,000 in deductions because of the SALT cap, Lohse says. The couple plans to move to Florida by the end of next year.
“If we could afford to live in New Jersey in retirement, we would,” Lohse says. “This is an absolute money decision. Emotionally, I would stay in Jersey. I’m a New Jersey boy, born and raised, and I love it for a lot of reasons. But they get me enough on taxes here. The SALT deduction killed me. You just can’t afford to live in New Jersey anymore.”
Original source can be found here.
Source: Florida Realtors