How moving to Florida saves taxes

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Q. How would moving to Florida reduce New Jersey tax exposure?
— Taxed out

A. That’s a big question, and there are several different taxes to consider.

From an income tax perspective, moving from New Jersey does not necessarily mean the state won’t come looking for you with its hands out.

The first question is whether or not you’re a New Jersey resident, said Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton.

If your primary residence is in New Jersey, then for income tax purposes, you are a New Jersey resident, Hook said.

“If you have a home in New Jersey but your primary residence is in a different state, New Jersey will consider you a resident of New Jersey if you spend 183 days or more in New Jersey,” Hook said. “Being able to document the time you spend out of the state is crucial if you maintain a home in New Jersey but it is not your primary residence.”

If you are in fact a resident of New Jersey, then all your taxable income is subject to state income tax, Hook said. But if you’re a non-resident, only the income earned from New Jersey sources are subject to New Jersey income tax.

Hook offered these examples:

If you live in New York but work in New Jersey, you would owe New Jersey income tax on the income earned in New Jersey.

If you owned a business located in New Jersey but lived in Florida, then the business would incur New Jersey income taxes, Hook said. If the business was an LLC or a partnership, you as the non-resident partner or LLC member would owe New Jersey income tax on your share of the income earned in New Jersey, he said.

Hook said there is some tax relief for taxpayers who live in a state with an income tax. You can take a credit for the taxes paid to the non–resident state against your resident state taxes, thus reducing the taxes you owe to your home state.

For example, he said, if you live in New York and work in New Jersey, the taxes you pay to New Jersey can be taken as a tax credit against the taxes you would owe on the same income in New York.

For Florida residents, because there is no state income tax, this credit would not be available to you. So you’d pay a state tax to New Jersey with no offsetting credit, Hook said.

Then there are estate and inheritance taxes to consider.

If you had a home in New Jersey and a home in Florida, when you die, the value of both homes would be included in your estate for both federal and resident state estate tax purposes, said Ken Hydock, an attorney and certified public accountant with Sobel & Co. in Livingston.

Hydock said if a non-New Jersey person died and owned a vacation home in New Jersey, the value of the New Jersey vacation home would be included in his home state estate return, but he would not have to file a New Jersey estate return.

“The only exception to this rule is for New Jersey inheritance tax purposes — where the asset is going to other than a spouse, child or grandchild — where the deceased would have to file a transfer inheritance tax return and pay a tax,” Hydock said.

And if the deceased was a New Jersey resident owning an out-of-state property, that property would be included on his New Jersey estate tax return.

Hydock said moving to Florida would save the state estate tax, but that tax will be repealed on Jan. 1, 2018.

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This post was first published in May 2017. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.