The Benefits of Establishing Florida Domicile
Key Takeaways:
- Tax Benefits: Florida offers significant tax advantages, including no state income tax, no state inheritance or estate tax, and various property tax exemptions and protections.
- Homestead Protections: Florida's homestead protection laws safeguard your primary residence from creditors, potentially saving your home from being sold to settle debts.
- Estate Planning Considerations: Establishing Florida as your domicile requires specific actions designed to ensure compliance with state laws and maximize financial benefits.
Dubbed the Sunshine State, it’s likely no surprise that Florida is the top destination for travel during the winter months.1 If you enjoy waiting out the cold weather in a place with sunny skies, beaches, and no shortage of things to do, perhaps you’ve considered making Florida your second home. But did you know that there are certain tax and estate planning benefits to making your move to Florida official? Rather than visit Florida as a vacation destination a few times a year, you may just benefit from turning your second home into a permanent residence.
Let’s take a look at what it means to name Florida as your domicile and the potential financial benefits of doing so.
How Does Domicile Differ from Residency?
“Domicile” is a term primarily used to determine certain legal or tax risks and obligations. “Residence” is a less concrete concept, as it can refer to wherever you are currently living. You can have multiple residences, but only one domicile. Your domicile is the state in which you essentially declare your “home base.” You pay income taxes there, have a driver’s license issued from that state, register your cars, and so on.
When in dispute, somebody’s domicile is decided by the courts on a case-by-case basis. If you have multiple homes, it can be a close call as to which is considered your domicile in the eyes of the IRS or court system — especially if you split your time evenly between homes (the winter months in Florida and summer months in New York, for example).
Why Make Florida Your Domicile?
Florida can be so much more than a wintertime destination; it can be an advantageous state to establish as your domicile. Here are five primary benefits of having a Florida domicile.
1. Income Taxes
Florida is considered a tax-friendly state, especially for high-earners or those with large estates. It’s one of only nine states in the country that does not levy a state income tax. What’s important to note too is that Florida’s sales and property tax rates remain close to the national average — meaning the state does not try to offset the lack of income tax with higher-than-average tax rates in other areas.2
Retirees find Florida to be an especially tax-friendly state to live in, as they can enjoy tax-free (at least at the state level) retirement income including Social Security, IRA or 401(k) distributions, pension payouts, and more.
2. Estate Taxes
Florida does not impose a state inheritance or estate tax. As a reminder, the federal estate tax exemption limit is $13,610,000 per individual in 2024.2 If your estate is below this threshold, it will not be subject to federal estate tax either.
3. Homestead Tax Exemption
For those who have their primary residence in Florida, the homestead tax exemption has the potential to save you thousands in property taxes each year.
Here’s how it works:
The first $25,000 of the home’s value is exempt from property taxes. You may exempt an additional $25,000 from non-school property taxes for the assessed value between $50,000 and $75,000. Residents over the age of 65 may be eligible to exclude an additional $50,000 from their property’s value.3
4. Homestead Protection
In addition to some significant tax savings, your Florida homestead may be eligible for Homestead Protection. This protects your residence from creditors, meaning they can’t force the sale of your home in order to satisfy your debts. There are a few exceptions to this rule, however, for certain debts including mortgages, mechanic’s liens, and taxes.3
Should you pass away, your homestead property may pass down to your beneficiaries without being subject to creditor claims as well (again, not including the exceptions shared above).
5. Limited Property Assessment Raises
Florida’s Save Our Homes law limits how high a homestead’s assessed value can increase in a given calendar year. A property’s value cannot increase more than 3% annually or the Consumer Price Index, whichever is less.4
With how hot the housing market has been in recent years, having a cap on the valuation of your homestead can help you potentially save big on property taxes each year.
How to Declare Florida as Your Domicile
If you’d like to make Florida your domicile, you’ll want to take a few simple steps to protect yourself and your estate from being questioned by the government or courts — especially if you split your time across various residences. First and foremost, file a Declaration of Domicile in your county. While this alone won’t be enough to prove your intentions, it’s a critical first step in establishing a new domicile. Next, you’ll want to obtain a homestead exemption (Form DR-501), which will allow you to declare your Florida residence as your homestead.
Additional steps to take include:
- Obtain a Florida driver's license (or ID card)
- Register to vote in your township
- Transfer car insurance and registration to Florida
- Notify former tax and voting offices of your move
- Terminate your previous domicile
- Establish Florida bank accounts
- Update insurance policies to reflect Florida residence
Take some time to also update your estate planning documents (wills, trusts, powers of attorney, etc.) to reflect Florida as your domicile, preferably with the help of a Florida-based estate attorney and financial planner. This will help ensure your estate is subject to Florida’s tax laws during the transfer process.
Thinking About Relocating to Florida?
While Florida may be America’s vacation destination, it also boasts plenty of perks and financial incentives for those who choose to make it their permanent home. If you’re thinking about moving to Florida, we highly recommend speaking with an experienced financial advisor who can help you talk through the benefits and considerations of doing so.
We encourage you to reach out and schedule time to talk with our team.
Wells Fargo Advisors did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The report herein is not a complete analysis of every material fact in respect to any company, industry or security. The opinions expressed here reflect the judgement of the author as of the date of the report and are subject to change without notice. Any market prices are only indications of market values and are subject to change. The materials has been prepared or is distributed solely for information purposes and is not a solicitation to an offer to buy an security or instrument or to participate in any trading strategy. Additional information is available upon request.
Wells Fargo Advisors is not a legal or tax advisor.
Sources:
1Which U.S. State is the Most Popular for Winter Travel in 2023?
2IRS provides tax inflation adjustments for tax year 2024