In October 2019, Donald Trump announced he was switching his residency from New York to Florida. From a tax perspective, it made perfect sense.
By changing his residency from New York to Florida, Trump (and any other citizen) can take advantage of the benefit of no Florida income taxes and no Florida estate taxes. A non-resident would still remain responsible for New York income taxes for any New York based income sources, but depending on life circumstances, this change of residency can represent significant tax savings for the taxpayer and his or her estate.
To gain these tax advantages, a person cannot simply buy a condo in Florida and spend some time on the beach. There are many factors and considerations that come into play.
New York can tax an individual as a resident under two scenarios: (1) if the person is domiciled in New York; or (2) even if the person is not domiciled in New York, but is considered a “statutory resident” of New York.
To establish a change of domicile, many factors are taken into consideration. Just some of these include whether the individual considers their New York residency as “home,” does the individual have any active business interests still in New York, where does the family spend the holidays, what are the value and size differences between the New York and Florida residences, and has the individual set down roots in Florida by establishing relationships with medical providers and social memberships?
Even if a person can successfully establish a change of domicile to Florida, New York can still consider them a “statutory resident” for taxation purposes. Two factors are dispositive – (1) the individual maintains a permanent place of abode in New York (a residence in New York maintained for themselves); and (2) he or she spends more than 183 days in New York in a given year. For so-called snowbirds who summer in New York, but spend the snowy months in Florida, this can represent a challenge.
To show how serious New York takes the 183 day rule, any part of a day in New York counts. If a person leaving New York for Naples is snowed in and has to spend a few hours on day 184 in the Empire State, they are now considered a New York resident and subject to its income and estate taxes.
Given the tax dollars at stake, it is not surprising that New York vigorously investigates residency claims. If a taxpayer, especially a high-earner, moves out of state and claims that he or she is no longer a resident, this can trigger a residency tax audit by the New York State Department of Taxation and Finance. New York has hundreds of auditors whose job is focused on investigating these residency changes. It is the taxpayer’s burden to establish that he or she is no longer a resident of New York. No tax audit is pleasant, but one in which you have to prove, down to the day, how many days you were not in New York, can be especially onerous.
There are many steps people choose to take to document where they were on certain days. Those include keeping a diary to record his or her location throughout the year, maintaining ticket confirmations, lodging receipts, credit card charges, EZ-Pass information, and other related proof that will establish a person's location on any given day.
There are many other actions individuals take to prove they are now residents of Florida. These often include:
- Filing a Declaration of Domicile in the Florida county the person is moving to, and a copy of a Declaration of Non-Domicile in the New York county they are leaving.
- Updating estate planning documents to ensure they recite the person is a resident of Florida and they comport with Florida law.
- Filing federal income tax returns with the IRS using the Florida address, and filing a final individual income tax return in New York using the new Florida address.
- Applying for a Florida homestead exemption for the Florida property, and no longer claiming any STAR or residency exemptions, or other discounts that would only be available to New York residents.
- Registering to vote in Florida, and canceling any New York voter registration.
- Obtaining a Florida driver’s license and updating registration for vehicles or boats in Florida, with the person's new Florida address.
- Move any items that are “near and dear” to the person to his or her Florida residence. This could include any important documents, valuable collections, or items of sentimental value.
- Updating all financial records to reflect the person's Florida address, including bank account statements, credit cards, checks, and investment accounts.
- Establishing social, religious and other memberships in Florida, and registering as a non‑resident member with such organizations in New York, if possible.
New York generates hundreds of millions of dollars through residency audits. They are thorough, and it can be costly if a person attempting to prove non-residency is not prepared. Having the above items established before an audit, often goes a long way to proving residency and eliminating a tax burden.
Our team at Gross Shuman has decades of experience working with New York residents to make the transition from resident to former resident as smooth as possible. Most importantly, we review each individual situation to make sure we take every step necessary to protect our clients' assets and minimize any tax liabilities, both now and on the estate.
If you would like to learn more, we are here to help.
Katherine Liebner is an attorney at Gross Shuman P.C. Ms. Liebner focuses her practice in the areas of estate planning, estate and trust administration, and labor and employment law. She can be reached at 716.854.4300 ext. 236 or email@example.com.