Residence in no income tax state??

[green night]

Interested in your thoughts. It seems like a simple math question but maybe i'm missing some of the calculations. Would love to hear anyone that did a similar calc / executed a similar plan and if they think it was worth it.

I'm a Michigan Resident. Michigan has 4.25% income tax and that applies to pensions, capital gains, dividends etc.

I'm sitting on about $950K of capital gains if i sold. I have $1.5MM in traditional IRAs, 403Bs, etc. My wife and i have $60K in annual pensions as well. $40K in annual dividends in our taxable account. Michigan does not tax soc sec though.

Our game plan has always been to live in florida a couple months a year. As i look at the situation though it seems like we should make that 6 months a year and make florida our residence. I know residence is more complicated than that but i don't want to get into all that ... assuming i qualify as a florida resident.

I'll pay higher (about double) property taxes not qualifying for "homestead" rates in Michigan. For our size of house and where we want to move too ... is likely to be $10,000 annually incremental. That might be a little high but pretty fair.

So, the way i'm looking at it I have $10,000 annual property taxes from Michigan if I resident in Florida. On the capital gains, let's assume i take those gains .. that's $42,500 in one time taxes. Let's assume that i pay taxes over yearly at a $4,250 in pension / dividends in taxes. A 5% withdraw rate on the IRAs / 403Bs and then taxed at 4.25% is roughly $3200 annually ... and that's now, not 11 years when I'm 59 1/2. So, it seems like the more my money grows over the next 11 years ... Florida will continue to become a more and more attractive tax situation. Today, it's pretty close but the advantage is still to go to Florida.

Comments are appreciated ... TIA

 

[Dash man]

Would you buy or rent in Florida? Cost of mortgage/ rent would likely be more than the Michigan income tax. I’m not saying don’t do it, but realize having two homes is costly.

 

[MichaelB]

If OP continues to own a residence in Michigan and will spend 1/2 year there, he’ll need to file part year resident taxes. It will be incumbent on him to prove to Michigan tax authorizes that the change in residency from Mi to Fl is legit. That is simple with some states and quite difficult with others.

If he can do this, timing of income is important.

 

[braumeister]

FWIW, I have a couple of neighbors on my block who own Florida condos and spend six months plus one week in Florida every year so they can be Florida residents for tax purposes. They both say that the financial aspects are complicated in several ways, and they are both retired lawyers. So I would caution you to examine the situation very carefully from all angles.

 

[38Chevy454]

I'll just add that you need to look at total tax burden and not just income tax. Items such as property tax, school tax, road tax or tolls, sales tax, vehicle reg fees, other taxes added onto utility bills, as examples. So while you may save on income tax, the new state may get you paying in other ways that there is not as much savings as you thought there would be.
In my opinion, all states will get something out of you. Each state has different methods to make that happen. Just some states take a bigger bite than others. Without getting on a political soapbox, you can do your own investigating. Just look at total tax burden.

 

[athena53]

My brother bought a home in FL and is keeping a lake house in SC for the summer. He's a tax CPA so I'm sure he knows how to qualify as a FL resident.

I'd have two concerns. One is that FL typically got a lot of tax revenue from tourism. Not sure how well that's going to work now. Will they increase sales, gasoline or property taxes? Let the infrastructure fall apart and cut back on servuces? The other is windstorm insurance. I'd guess it's going to be very expensive anywhere in FL, even if you're not on the coast, and the cost is going to rise faster than general inflation.

 

[green night]

If OP continues to own a residence in Michigan and will spend 1/2 year there, he’ll need to file part year resident taxes. It will be incumbent on him to prove to Michigan tax authorizes that the change in residency from Mi to Fl is legit. That is simple with some states and quite difficult with others.

If he can do this, timing of income is important.

Yes, the timing of income could make it more important to do it for a few years vs. indefinitely.

 

[Koolau]

There's another thread similar floating around here someplace. Some good advice (I think) is to "live where you want to live" if you can afford it (which includes tax burdens.) Maybe consider a year's move to a tax friendly state. Rejigger all your investments to shake out all the "taxable events" and then go live where you want to live.

I mentioned in the other thread that we thought we would have a larger state tax bill (ours goes as high as 10%) BUT we were like Bogey (the waters in Casablanca) misinformed. Because of our status (age and retirement) our state taxes are quite low - as is our property tax. SO, it's complicated. Do a lot of homework - especially find out just how aggressive your current state is about "keeping" you on its tax rolls. I see where Cali is trying to claim folks for what they MADE while they were there - up to 10 years after they move away! Don't know if it's legal, but they sure do need the money 'cause anyone with money is probably going to leave (oops, editorial comment, so YMMV.)

 

[green night]

FWIW, I have a couple of neighbors on my block who own Florida condos and spend six months plus one week in Florida every year so they can be Florida residents for tax purposes. They both say that the financial aspects are complicated in several ways, and they are both retired lawyers. So I would caution you to examine the situation very carefully from all angles.

good point!

 

[green night]

Would you buy or rent in Florida? Cost of mortgage/ rent would likely be more than the Michigan income tax. I’m not saying don’t do it, but realize having two homes is costly.

I keep thinking that i would buy a condo.

 

[OldShooter]

I read an interesting article a year or so ago describing the efforts the high-tax states were making trying to capture taxes from former full-time, now part-time residents. The gist was that it's not necessarily adequate to be in the high-tax state less than 50% of the year. The states are now asking for driver licenses, where you get dental work done, where your broker's office is, etc. Basically anything that they can use to tie you to their state and taxes. It would probably be prudent to check into what efforts MI is making along these lines. It would be terrible to go to all that work and still be captured by the MI tax man.

 

[green night]

I read an interesting article a year or so ago describing the efforts the high-tax states were making trying to capture taxes from former full-time, now part-time residents. The gist was that it's not necessarily adequate to be in the high-tax state less than 50% of the year. The states are now asking for driver licenses, where you get dental work done, where your broker's office is, etc. Basically anything that they can use to tie you to their state and taxes. It would probably be prudent to check into what efforts MI is making along these lines. It would be terrible to go to all that work and still be captured by the MI tax man.

Yea, I've read similar articles. I would do it right and get the licenses and all that. The Doctors is interesting ... but i would think Florida has best in class for older people! thanks!!

 

[timo2]

You have to look at your own situation. The States will get ya somehow, someway. See how each state you like compares to your own situation. Like others have said, not having a state income tax does not mean that state is some magical tax free place.

 

[sengsational]

^(OS) They might try to keep their tricks secret, though. Is there a state-by-state list somewhere? Of course this is exactly the direction the OP said he didn't want the thread to go

 

[OldShooter]

Yea, I've read similar articles. I would do it right and get the licenses and all that. The Doctors is interesting ... but i would think Florida has best in class for older people! thanks!!

I would be very nervous about keeping my house in MI. They might claim that as evidence that you haven't really moved away. With some effort, you might be able to find a CPA in MI or FL who had experience with the MI tax authorities and what you might run into.

 

[Sunset]

There's another thread similar floating around here someplace. Some good advice (I think) is to "live where you want to live" if you can afford it (which includes tax burdens.) Maybe consider a year's move to a tax friendly state. Rejigger all your investments to shake out all the "taxable events" and then go live where you want to live.

..

Brilliant !!
I may have missed this thought in other threads, but I always thought of moving to FL or similar non-income tax State for years.

Since IL does not tax IRA or Pension money (yet), this would only be good for a lot of LTCG earned in taxable accounts.

 

[RunningBum]

I would be very nervous about keeping my house in MI. They might claim that as evidence that you haven't really moved away. With some effort, you might be able to find a CPA in MI or FL who had experience with the MI tax authorities and what you might run into.

A friend of mine researched this and got a lawyer's opinion. He gave me a copy of that opinion and it had all the warnings I've read in the last few posts. You should break all ties with your current state, including selling your house. You should get your driver's license, car registration, doctors, dentist, voter registration, etc, all in the new state. You may need to have convincing evidence that you have relocated. It's not to say that you can't later move back, but keeping your house gives you the appearance that you never really intended to move.

 

[Retired Expat]

I lost that battle one year and the tipping point was not where I was, but where my pets were and where their doctor was. Sure call it residence but really it is domicile. I resided in Florida for 2 years but my domicile never changed. I had bank accounts in two states, drivers license in one but voted in the other. Where did I intend to end up was the factor for that tax battle. In the other I was in the process of moving everything to CA but was still back and forth a lot. Company car in the new state but personal vehicle was still in the old for when I “went home”. Said that in a meeting and it was all over! I still felt like my old residence was “Home” so that state only gave up when I sold my apt there. It is not a cut and dried argument by any means... document, document document to prove your case. Buy all your meds in one place, get a library card there, have all mail come there even if forwarded to you at the other, doctor, dentist, Vet where you want to be domiciled. Consider renting out the other one part time but not your primary. Etc etc. after a couple of years provided you aren’t earning money in your former state they will let go...

 

[FlaGator]

As you're working through the calculations, pay attention to property taxes in FL.

The rates are higher here than some states, but generally lower than MI, TX, NY, NJ and a few others. Tax rates also vary by county-southern coastal counties among the highest, Panhandle and rural inland the lowest. Big difference between Fort Lauderdale/Broward County (south) and Fort Walton Beach/Okaloosa County (Panhandle). Full time residents get break, part-time and rental properties pay full price.

Hope it works out for you to move, always glad to have another evangelist transplant, please don't whine after you get here

 

[Amethyst]

If quality of medical care is a big deal, you'll want to stay near centers of medical excellence (e.g. Duke University, Johns Hopkins, etc.) Florida doctors frequently went to school in Florida, as one might expect. No guarantee of excellence, just because they serve an old population.

Yea, I've read similar articles. I would do it right and get the licenses and all that. The Doctors is interesting ... but i would think Florida has best in class for older people! thanks!!

 

[Amethyst]

That doesn't square with my observation. Many, many Florida residents, including the most (in)famous one, have homes up north; most spend all summer there and reappear when hurricane season is over. Their cars bear Florida plates and their Florida homes are homesteaded. If you have two homes, and want to homestead in Florida, you'll have to give up any homestead exemption on the other house. But I never was told that you have to sell the other house.

You should break all ties with your current state, including selling your house. .

 

[HI Bill]

I'm a Michigan Resident. Michigan has 4.25% income tax and that applies to pensions, capital gains, dividends etc.

I'm sitting on about $950K of capital gains if i sold. I have $1.5MM in traditional IRAs, 403Bs, etc. My wife and i have $60K in annual pensions as well. $40K in annual dividends in our taxable account. Michigan does not tax soc sec though.

A little confused here. The traditional IRAs and 403Bs are 100% taxable (not just capital gains). Assuming that your invesments make at least 4% annually, why not just sell them a little at a time, and pay the tax? Assuming you'd pay 4.25% on $950K, that's only $40,375. Seems like buying a second property and going through all that hassle would cost you a lot more than $40K, and it wouldn't be worth it to me unless you REALLY want to live in FL part time.

 

[pb4uski]

If OP continues to own a residence in Michigan and will spend 1/2 year there, he’ll need to file part year resident taxes. It will be incumbent on him to prove to Michigan tax authorizes that the change in residency from Mi to Fl is legit. That is simple with some states and quite difficult with others.

If he can do this, timing of income is important.

No, I don't think so. Most states you are either a resident or a non-resident most years... but you are a part-year resident ONLY in a year that you move into or out of a state. If you are not a resident you don't need to file a tax return unless you have income from assets sited in that state.

So for example, we'll be FL residents and will spend less than 183 days at our vacation home in Vermont so we are not Vermont residents and will have no Vermont income since we don't have any income producing assets in Vermont... so no need to file a VT tax return. Drivers licenses, voting, all financial accounts and credit cards, pension direct deposit, homestead exemption, etc. will all be FL. We will take ourselves off the voter list in VT and no longer file for homestead there. Only things in VT will be vacation home, and some vehicles (truck, boat, jet-ski) that are garaged at that vacation home and used while we are in VT, insurance on those vehicles, etc.

OTOH, DM is a resident of Texas, has a vacation home and spends less than 183 days in Vermont and has a commercial property in Vermont... she files a non-resident Vermont tax return to pay state income tax on the income from the commercial property located in Vermont, but all of her other income is Texas despite her spending a lot of time in Vermont.

Most states are similar.... so if OP becomes a FL resident, even if they spend 182 days in Michigan they should not need to file a MI tax return unless they have income producing assets in Michigan.

 

[pb4uski]

A friend of mine researched this and got a lawyer's opinion. He gave me a copy of that opinion and it had all the warnings I've read in the last few posts. You should break all ties with your current state, including selling your house. You should get your driver's license, car registration, doctors, dentist, voter registration, etc, all in the new state. You may need to have convincing evidence that you have relocated. It's not to say that you can't later move back, but keeping your house gives you the appearance that you never really intended to move.

While it would be ideal to break all ties, including selling your house, you don't necessarily have to sell your house. It isn't unusual for someone to keep a vacation property and perhaps even a car in their old home state. DM and some friends are TX or FL residents but keep a home and a car in Vermont, and perhaps even a bank acount with a nominal balance to have access to an ATM, but that is it... driver's licenses, voting registration, homestead exemptions, financial accounts, direct deposits of pensions or SS, and the like are all addressed to their home state.

 

[pb4uski]

That doesn't square with my observation. Many, many Florida residents, including the most (in)famous one, have homes up north; most spend all summer there and reappear when hurricane season is over. Their cars bear Florida plates and their Florida homes are homesteaded. If you have two homes, and want to homestead in Florida, you'll have to give up any homestead exemption on the other house. But I never was told that you have to sell the other house.

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