Question:  

We have homes in Florida and North Carolina. Can you explain the differences between residency, domicile, homestead status, and why it matters?

Answer: 

The benefits of Florida living goes beyond gorgeous weather to include tax benefits and asset protection advantages. You may risk missing out on all that Florida provides without proper planning to establish domicile. It’s not as complicated as it may appear. Let’s start with a little history to understand the background of homesteading, and why other states are eager to hold on to your tax revenue. 

Homestead

Abraham Lincoln signed the Federal Homestead Act in 1862 during the Civil War. This opened 500,000 square miles of territory in the western United States for settlement by offering free 160-acre parcels of land to anyone willing to settle on them. After five years, the homesteaders became owners if certain conditions were met such as living on the property and building a home. 

The Federal Homestead Act was repealed in 1976, yet many states, including Florida, kept their own homestead laws. Homestead simply means that a home is exempt from seizure or sale for debt. In Florida, the homestead law exempts multi-million dollar mansions’ total value from attachment making our state attractive to celebrities, professional athletes, and many others. 

Domicile vs. Residence

Domicile refers to permanent residence. You may have many residences in various states yet maintain only one domicile. A former domicile must be formally unclaimed, but it can remain as your residence. 

There’s more to establishing Florida Domicile than residing in the Sunshine State for more than six months. You must also formally become a non-resident of your former domicile state. The laws are subjective, and the ultimate determination depends on intent and actions. 

If you decide to domicile and homestead in Florida, your former state’s tax department will likely miss the tax revenue you previously provided. With increasing deficits, states will likely try to keep all tax revenue, including yours. If you spend time between one or more residences during the year, it’s important to choose one state and clearly identify it as your domicile. 

According to the Florida State Statutes Chapter 196, there are ten factors property appraisers consider determining the intent of someone establishing domicile and claiming a homestead exemption:

• Formal declaration of domicile recorded in public records and residency date.
• Dependent children’s school location(s).
• Place of employment.
• Proof and date non-Florida residency terminated.
• Florida voter registration number (if US citizen).
• Florida driver license or identification card number; evidence of giving up driver license from another state.
• Florida vehicle license plate number.
• Address listed on your last IRS return.
• Bank statement and checking account mailing address.
• Proof of payment of utilities at homestead address.

That’s all there is to it. The more of these items accomplished, the more likely Florida domicile will be upheld if your former state contests your status. As we welcome you to sunny Florida, don’t be surprised if your former state works hard to keep your tax revenue. 

Home is Where the Dog Is

In a recent case, the determination was literally decided on where an individual’s dog resided. The person had two homes, and one senior Golden Retriever. The dog made the move to the more tax friendly state and the other state contested the loss. The decision hinged on the fact that the dog relocated and satisfied the “near and dear” rule to establish domicile in Texas, in this instance. 

With so many people relocating and setting up second residences during and after the pandemic, this issue is becoming more common with workers moving to lower tax states like Tennessee, Texas, and Florida. Every state determines residency status differently. Getting it right is important. As always, check with your tax professional to determine the tax consequences of any financial changes that may occur. Legal issues should also be examined as documents and arrangements vary from state to state. Your attorney can advise you if they’ll need to be modified. Stay focused and plan accordingly.