Article on NY audits of Florida tax refugees

[statsman]

Maryland is getting vicious toward the high-income residents fleeing to Florida and North Carolina. MD is now withholding 7.5% of the proceeds of a house sale when you move out of state. This is supposed to ensure people pay any capital gains tax owed on the house, but it is charged to everyone, even if you had to sell at a loss.

Next year when you file your taxes with MD as a part-year resident, hoping to be refunded for the tax on the capital gains you did not receive, MD Comptroller's office may audit your return. They certainly are in no hurry to refund your money. And 7.5% of the purchase price is probably a lot more than most people would ever owe in CG tax. Think of it - 7.5% of a $500,000 sale is $37,500!

California has something similar (3 1/3%), but that's usually reserved for sellers of real estate who are either non-residents or non-citizens. That's at least more reasonable, particularly for those who are leaving the country. We're paying quite a bit of capital gains tax on our CA house sale from last year, but 7.5% would be a lot more than we actually owed.

 

[Amethyst]

Apparently, though, if you move to Florida and change your state of residence (e.g. registering your car, getting a FL driver license) MD considers you an out-of-state buyer.

Of course anyone who moves to Florida wants to establish FL residency asap, for income tax reasons, and so you can get the benefits of homesteading (property tax caps, favorable insurance rates etc).

This tax racket must be fairly new, as I have only recently heard people complain about it.

California has something similar (3 1/3%), but that's usually reserved for sellers of real estate who are either non-residents or non-citizens. .

 

[marko]

"down 50%" means nothing without context. Down since when?

Seems unlikely. Perhaps you have a link to the source of that claim?

As I noted above, it was a CNN segment last week about wealth fleeing high tax states.

Mass, at 50% of revenue loss was among 5 other states. The segment also included the Cuomo comment so it at least implied that the numbers were recent.

As I recall it had tied in the most recent tax changes (and maybe the new SALT limitations) as being a notable culprit.

I was watching CNN in Europe so I'm not sure if it was also broadcast in the US.

 

[JoeWras]

If that were the biggest factor, Oahu roads would be fantastic. As it turns out, our roads are much worse than those in the semi-rust-belt midwest state I used to live in. Back in the day, we had freeze thaw cycles weekly (or more frequent) during winter - and the heat finished things off in the summer. Still, they kept the roads in better shape than Oahu's roads.

One factor here (in Paradise) is the crumbling infrastructure UNDER the roads. There is a major thoroughfare in Honolulu that is constantly torn up as they chase newly broken water pipes. I don't ever recall traversing it without bumping over steel plates or going around cone-zones. I think roads are more a matter of priority rather than "natural phenomenon." YMMV

Sure, urban areas and the tear ups are a problem.

Florida has nearly a perfect road substrate that is very stable and thick built right in. Volcanic soil is probably different.

 

[Philliefan33]

Maryland is getting vicious toward the high-income residents fleeing to Florida and North Carolina. MD is now withholding 7.5% of the proceeds of a house sale when you move out of state. This is supposed to ensure people pay any capital gains tax owed on the house, but it is charged to everyone, even if you had to sell at a loss.



Next year when you file your taxes with MD as a part-year resident, hoping to be refunded for the tax on the capital gains you did not receive, MD Comptroller's office may audit your return. They certainly are in no hurry to refund your money. And 7.5% of the purchase price is probably a lot more than most people would ever owe in CG tax. Think of it - 7.5% of a $500,000 sale is $37,500!

Seems like this is an opportunity for someone to set up apartments for short-term leases. Sell your MD house and move in to an MD apartment. Get everything owed to you at settlement. Then, a month later, move out of state.

 

[Crabby Mike]

Unless something has changed since I went through this a few years ago (and a review of the Maryland tax site doesn't indicate it has) there are several big caveats to this. There is an exemption if it's your primary residence, and even if not, you can file an application for exemption. The latter allows you to calculate your capital gain on the property, and pay the tax on that amount instead of the sale price less selling cost, which is the default.

 

[pb4uski]

Interesting.... for us.... currently contemplating a change in domicile in 2020, the savings are tantalizing but not compelling.... property tax differences are a minor benefit... auto insurance will be more expensive... state income tax savings are nice but not crazy.... net benefit is about 2.5% of our annual withdrawals. Not sure what we will do.

 

[HawkeyeNFO]

Unless something has changed since I went through this a few years ago (and a review of the Maryland tax site doesn't indicate it has) there are several big caveats to this. There is an exemption if it's your primary residence, and even if not, you can file an application for exemption. The latter allows you to calculate your capital gain on the property, and pay the tax on that amount instead of the sale price less selling cost, which is the default.

Yep, dealt with that in 2016 when we sold our town house. Exemption form eliminated that 7.5% tax.

 

[joeea]

As I noted above, it was a CNN segment last week about wealth fleeing high tax states.

Mass, at 50% of revenue loss was among 5 other states. The segment also included the Cuomo comment so it at least implied that the numbers were recent.

As I recall it had tied in the most recent tax changes (and maybe the new SALT limitations) as being a notable culprit.

I live in Mass at the moment. As far as I can tell, there's been no 50% loss of revenue. I'm guessing it would have made the news had it been real.

Perhaps what you saw was some sort of projection...

 

[Fishingmn]

Minnesota does this too.


A couple things they look for are where you bank and where your primary services are (doctor, dentist, accountant ...).

 

[truenorth418]

As time goes by, still more noise about people
“fleeing” to low/no tax states like WA, FL, NV, etc. from high tax states like CA, NY, NJ.

Is anyone aware of any of the high tax states taking action to LOWER their tax burdens in order to become more competitive and stop the exodus? Seems like that would be a logical next step.

 

[GravitySucks]

NY now exempts the first $20k withdrawls from 401k and IRAs from taxable income. Cut my state income tax to about half what it was. Property taxes will decrease slightly at age 65 making this about a middle tax rate place for me.
And no Gators, Fire Ants, or scorpions. Rattlesnakes are endangered species here.

 

[HadEnuff]

NY now exempts the first $20k withdrawls from 401k and IRAs from taxable income. Cut my state income tax to about half what it was. Property taxes will decrease slightly at age 65 making this about a middle tax rate place for me.
And no Gators, Fire Ants, or scorpions. Rattlesnakes are endangered species here.

When did they start this?

 

[aja8888]

And no Gators, Fire Ants, or scorpions. Rattlesnakes are endangered species here.

That's because those creatures can't live in a block of ice 6 months of the year!

 

[CaliKid]

As time goes by, still more noise about people
“fleeing” to low/no tax states like WA, FL, NV, etc. from high tax states like CA, NY, NJ.

Is anyone aware of any of the high tax states taking action to LOWER their tax burdens in order to become more competitive and stop the exodus? Seems like that would be a logical next step.

A lot of people want to live in a progressive place with great weather and don't mind paying more in tax.

 

[Bamaman]

As time goes by, still more noise about people
“fleeing” to low/no tax states like WA, FL, NV, etc. from high tax states like CA, NY, NJ.

Is anyone aware of any of the high tax states taking action to LOWER their tax burdens in order to become more competitive and stop the exodus? Seems like that would be a logical next step.

I think that what many people are overlooking is that those moving to low income tax states like Florida are not necessarily moving just for the taxes. It's the total quality of life some other states provide. Cheaper housing and property taxes are important. And if it's 75 degrees on a mid winter day in Central Florida, more power to you.

I often watch home building and decorating television shows--some of which are being filmed in Southern California and Toronto. They'll buy a fixer upper for $650K that I wouldn't be caught dead living in and then plow $200-300K more into fixing it up. And afterwards, it'll be nice inside, but I still wouldn't want to live in a place with such ratty residences in the neighborhoods.

It's a higher quality lifestyle I'm after. And the less expensive places to live often have a more gentile society and more of what I'm after. We're just fortunate to be living 30' from a major river and have 2 Robert Trent Jones golf courses 300 yards down our street.

 

[DCdave]

Growing up we had neighbors who only half-jokingly claimed to be 'tax exiles' from the UK. They literally 'took a different route' to avoid the high UK taxes of the late '60's.

IIRC, France had to recently rethink their millionaire tax due to an exodus of wealth.

I posted earlier about a CNN segment last week that showed how a few states are seeing a notable drop in their tax revenue as the wealthy are taking their residences elsewhere. They claim that Mass is down 50% (which I find a bit surprising).

The point, I think, is that most tax projections view everything as static without taking into consideration how money can walk "a different route home" and those most affected have the most options to do so.

—————-
I knew there was no way that a states tax revenue could go down 50%. According to the State of MA website their fiscal 2019 tax revenues were 6.9% HIGHER than fiscal 2018.

 

[Sunset]

I think that what many people are overlooking is that those moving to low income tax states like Florida are not necessarily moving just for the taxes. It's the total quality of life some other states provide. Cheaper housing and property taxes are important. And if it's 75 degrees on a mid winter day in Central Florida, more power to you.
.....

Many people don't get that folks moving from IL can check off all the boxes to Get:

1. Drastically lower (zero) State income tax
2. Drastically lower property tax
3. Lower sales tax
4. Cheaper housing
5. Nicer weather except for June,July,August,Sept where it nice to visit rest of country.

I have to start packing

 

[Badger]

Stick to the East Coast, FL for NY food. The West Coast, FL has Midwest transplants, who bring their food with them.

Then stop complaining, all of ya!

I have lived in Florida (both in Central and Northeast) since 1962 and I have yet found any place where the food is like NY or NJ for that matter.



I would love to have a good bagel, sub, or pizza. Restaurants (?) like Dominoes, Subway and Bagels-R-Us are the norm here.


Please tell me the town and restaurants where you are finding these. Thank you.


Cheers!

 

[LRDave]

It's a higher quality lifestyle I'm after. And the less expensive places to live often have a more gentile society and more of what I'm after.

I am going to give the benefit of the doubt and assume that "genteel" was the word you were after....

 

[GravitySucks]

There's never been Gators up here....


Oh, the tax bit. I think it was 2016. I remember waiting till my 59 1/2 birthday to do my withdrawal the first year I was eligible.

https://www.newsday.com/business/how-to-use-ny-s-20g-exemption-for-retirement-income-1.14362625

When did they start this?

 

[MichaelB]

As time goes by, still more noise about people
“fleeing” to low/no tax states like WA, FL, NV, etc. from high tax states like CA, NY, NJ.

Is anyone aware of any of the high tax states taking action to LOWER their tax burdens in order to become more competitive and stop the exodus? Seems like that would be a logical next step.

The noise is not supported by the data. The state with the biggest decline over the past decade is West Virginia. The population in California and New York increased. See census data here https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk#

 

[Perryinva]

It’s not just population, it’s high income population. Much harder to find stats on. I would never live in FL, my own reasons, same as many, or IL. It is often just a matter of how they get their income from you. If you have a very high income and only rent, then property tax doesn’t mean anything to you. If you never go out to eat or to anywhere, then roads and meals taxes don’t mean anything to you. Everyone has to look at the total cost picture. We looked at PA, which is retirement income friendly but the increased property taxes (we wouldn’t rent) exceeded the income tax savings by staying put where we are. And I prefer the weather overall here.

 

[MarieIG]

The noise is not supported by the data. The state with the biggest decline over the past decade is West Virginia. The population in California and New York increased. See census data here https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk#

I believe that TrueNorth, whom you quoted is from NY. A lot of us New Yorkers recall our governor lamenting quite publicly about the "rich" leaving New York - not the population in general decreasing. (I could not access the census link, but I spend a lot of time in NYC and have no problem believing that the overall population has increased.)

 

[gerntz]

The noise is not supported by the data. The state with the biggest decline over the past decade is West Virginia. The population in California and New York increased. See census data here https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk#

Decade is a long time:

"West Virginia is down 11,216 residents from July 1, 2017, to July 1, 2018.

The other states that lost population over that period included New York (down 48,510), Illinois (45,116), Louisiana (10,840), Hawaii (3,712), Mississippi (3,133), Alaska (2,348), Connecticut (1,215) and Wyoming (1,197)."

Net, WV is a distant 3rd in more recent population loss.