01 Dec With no SALT deduction, should I move to Florida?

Q. I’m thinking of moving to Florida because the taxes in New Jersey are so high, and now it doesn’t look like I would qualify for any new SALT deduction that gets passed. I have a pension of $40,000, IRA distributions of about $50,000 a year and maybe $10,000 of investment income. I’m a retired widow and I own my home outright, which is worth maybe $800,000. What are the cons to moving?
— Considering

A. Taxes. Yup.

There’s no question that taxes across the board are high in New Jersey when compared with other states, and that most taxes in Florida are lower.

To begin with, Florida has no state income tax, while New Jersey imposes a gross income tax that ranges from 1.4% to as high as 10.7% on taxable income over $1 million, said Gene McGovern, a certified financial planner with McGovern Financial Advisors in Westfield.

New Jersey also has some of the highest property taxes in the nation, he said.

Florida, however, while less expensive, still ranks 18th out of 50 states in property taxes as a percentage of median income, he said.

McGovern said New Jersey’s sales tax is actually slightly less than in Florida.

“Florida imposes an average combined state and local sales tax rate of about 7% compared with New Jersey’s 6.625%. Note also that Florida taxes clothing purchases while New Jersey doesn’t,” he said.

Then, gasoline taxes in Florida are about 7 cents a gallon less than in New Jersey.

“So, to paraphrase Governor Murphy, if taxes are your only consideration, maybe New Jersey isn’t the state for you,” McGovern said.

But let’s take a moment to look at the other side of the New Jersey tax coin before turning to your question.

To begin with, New Jersey doesn’t tax Social Security benefits at all. They’re tax-free here, he said.

Moreover, New Jersey recently expanded its tax exclusion for pension and retirement income, effective for the 2021 tax year. Under the new rules, if you’re 62 or older and your total income is $150,000 or less, you can exclude all or part of your pension, annuity, and IRA withdrawals from being taxed, based on your income.

Many New Jersey retirees, then, are eligible to pay little or no state income tax, he said.

In terms of property tax relief, New Jerseyans who are 65 or older and have total income that doesn’t exceed $92,969, as of 2020, are eligible for the Senior Freeze, which reimburses eligible senior citizens and disabled persons for increases in the property tax on their principal residence, he said. The income limit is adjusted upward each year.

Finally, New Jersey abolished its estate tax as of 2018 and has no gift taxes.

So what are the cons to moving? First, McGovern said, it’s expensive.

“If you sell your home, you’ll generally have to pay taxes on any gain that exceeds $250,000. If your husband died within the past two years, you may qualify to exclude up to $500,000 of gain,” he said. “In any event, you’re likely to pay a 15% capital gains tax on the taxable profits from selling your home, along with New Jersey gross income taxes.”

For example, if you have a net $100,000 taxable gain from selling your home, and assuming 15% in federal capital gains taxes plus 6.37% in New Jersey taxes, you’d owe $21,370 in taxes on the sale, McGovern said.

Selling your home also involves paying real estate commission fees of 5 to 6% of your home’s sales price, which could be $40,000 to $48,000 on an $800,000 home, plus legal and other fees, such a New Jersey’s realty transfer fee, he said. Then there are the costs of preparing your home for sale, such as making repairs and cosmetic improvements, he said.

Average moving costs to Florida can be $3,000 to $4,000, plus the fixing-up costs of your new place, along with new furniture or appliances, he said.

“By contrast, if you don’t sell your home and instead leave it to your children or other heirs, their basis in the home would be stepped up to its fair market value at the time of your death, with no income or estate taxes payable on the gain,” he said.

More intangible — but equally or even more important — factors to consider are social and emotional.

“For example, if your family and friends live nearby, moving to Florida could mean seeing much less of them and potentially feeling isolated. At the same time, it can be difficult to make new friends later in life,” he said. “Much depends on whether you’ll feel comfortable in a new social and cultural environment that might differ from your current one.”

Other factors to consider are such things as your preferences for climate and geography, whether you like to take advantage of cultural events in New York City and the surrounding area, convenient access to a major airport for travel, and the availability of quality medical care, McGovern said.

“In the end, it’s often wise not to let the tax tail wag the whole dog on major life decisions,” he said.

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This story was originally published on Dec. 1, 2021.

NJMoneyHelp.com 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.