Retirement Tax Trap
March 01st, 2017
What impact will changing residency have on my taxes?
My wife and I have been spending our winters in our Florida home for several years. What steps do I have to take to change my residency to Florida, so I can stop paying income taxes in my home state?
This is a complicated problem, with some angles that you may have overlooked.
For example, let’s say Jerry and his wife, Liz, successfully became Florida residents. About five years later, they decided to sell their lifelong northern home. They had paid $30,000 for it 35 years ago and were told that it now was worth $400,000. They were excited by the prospective windfall. Then their accountant gave them the bad news.
Because Jerry and Liz were now Florida residents, their northern home was no longer their principal residence. Accordingly, the sale of that home would not be eligible for the exclusion from taxes on the capital gain for the sale of a principal residence (up to $500,000 for married couples). The entire $370,000 profit would be taxed, and the bill might easily come to $100,000.
They immediately took the home off the market.
You should see a lawyer before taking the step of formally changing your residency.
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