The income tax, property tax, estate tax and asset protection planning advantages of Florida domicile make Florida the ideal place to live, whether you are still working or are retired. Florida obviously wants to be considered a tax-favorable haven for its residents and wants to attract new residents - both retirees and working people.
Florida's homestead exemption which provides an exemption from a forced sale is among the most protective in the United States. It provides no limit to the value of homestead real property that can be protected from creditors. This is how O. J. Simpson can own an expensive home in Florida despite a huge unpaid civil judgment against him. Various World.com and Enron executives bought lavish homes in Florida.
Florida has no individual income tax. (It does have a corporate income tax.) Florida has no estate or inheritance tax. (Since the Florida estate tax "picks up the federal state death tax credit and that credit has been eliminated from the federal estate tax; Florida estate tax is zero. Unless there is a change, the state death tax credit and Florida's estate tax will be back. in 2010.) It has a 6% state sales tax. Some counties charge an additional sales tax.
Florida did have an intangibles tax but that was repealed in 2006. The intangibles tax applied to stocks, bonds (excluding Florida municipal bonds), mutual funds, and notes receivable. Retirement accounts, life insurance or annuities were exempt. The rate was .5 mills, and there was a $250,000 exemption per resident. ($500,000 per couple).
In 2007 the Florida legislature passed a Reform Bill that proposed to create a new "super-homestead" exemption. After a legal battle, a Constitutional Amendment appeared on the ballot to increase the exemption from the tax and "portability" of the Save Our Homes exemption. The amendment passed on January 29, 2008. This tax savings is available only to Florida residents.
The Amendment increases the homestead exemption from $25,000 to 50,000 but only for taxes other than school taxes and just for homes valued at more than $50,000.
Since 1995, Florida has had a property tax law that capped the increase in assessment value of residents' property at 3% per year. The actual value of the properties often far outstripped the 3% per year growth. The gap between the assessed value and the actual fair market value of the home is called the Save-Our-Homes (SOH) differential. Many residents fear moving from their homes because they don't want to lose the tax advantage of paying taxes on their much lower assessed value. The new constitutional amendment allows up to $500,000 of value from the gap between the assessed amount and the fair market value to be applied towards the tax base of .any new home purchased in Florida within two years. In other words, the SOH differential is "portable." This benefit is available only to residents.
For snowbirds who have a principal residence in a northern state and also a home in Florida, the new Florida Constitutional Amendment may be bad news. Not only do they not qualify for the 3% cap or the portable SOH benefit, but the gap in the real estate taxes they are paying compared to their homesteaded neighbor is likely to increase. The taxing authorities whose budgets are reduced because of the new tax breaks for homesteaders will need revenue. A likely source is to increase the tax rate on non-residents. This will probably lead to more northerners deciding to change their domicile to Florida.
In the meantime, what is the State of Florida doing for revenue? Reduction of property taxes benefits homeowners, but hurts education. Empty-nesters are moving in, but families are moving out. Instead of an anticipated increase of 30,000 pupils, the state has seen virtually no increase. Non-residents can pay twice the property tax of their resident neighbor with the same house. Attorney Jerome Lanning of Birmingham, Alabama, is suing to seek relief from the disparity, and when the case reaches the U.S. Supreme Court, things might well change.