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MIAMI – April 25, 2018 – Luxury real estate sales in Florida could get a boost from a rule in the federal tax bill that President Donald Trump signed into law in December.
The rule caps “SALT” or state and local tax deductions at $10,000, when before those deductions were unlimited. Those include real estate, and either income taxes or sales taxes. For wealthy people who itemize deductions, income taxes alone exceed that amount, let alone property and sales taxes. If they also live in a relatively high tax state such as New York or New Jersey, that could make officially declaring Florida their “home” a more attractive proposition because it has no state income tax.
Real estate agents, certified public accountants and other industry professionals say that since the law went into effect, they have seen a flurry of interest from wealthy clients in higher-tax states who are looking at buying homes in South Florida and declaring the state their official domicile.
“We’re getting a bump in the wealthiest people looking for this to minimize their tax liability,” said Michelle Noga, a Realtor with the Palm Beach-based Fite Group, which sells luxury properties.
Tiffany McQuaid of McQuaid & Company, a real estate brokerage based in Naples, has seen a recent uptick in buyers from places in upstate New York as well as the San Francisco area, she said, though it’s uncertain how much the $10,000 cap alone affected their decisions.
For one of her clients, New York State-resident Louis Polsinello, it is a significant part of his plans to declare Florida as a domicile, maybe “sooner rather than later.”
“That cap at $10,000 isn’t going to go very far when you make any kind of money,” said Mr. Polsinello, owner of Polsinello Fuels, an oil company based outside Albany.
New York has a maximum 8.82 percent state income tax, so tax on any income over $120,000 has already exceeded the $10,000 cap.
“And then you can’t even take real estate taxes into consideration,” Mr. Polsinello said.
Areas of Palm Beach County have long been on the list of potential homes for people in the greater New York area, leading some to nickname it “the sixth borough.” Real estate broker David Fite of Fite Group, with its headquarters on Palm Beach island and an average home sale price of $1.8 million, is looking to capitalize on any new sales the $10,000 cap could inspire. Seventy percent of Fite’s business comes from the northeastern tristate area: parts of New York, New Jersey and Connecticut.
“Especially when the tax plan went into effect we definitely saw a bump in hedge funds and wealthy New Yorkers and (people from) Chicago and even California inquiring and even purchasing multi-million-dollar homes in Palm Beach and Palm Beach County,” Mr. Fite said. “I think it’s going to be a boon for Florida in general but definitely the luxury markets in Florida, the waterfronts, Palm Beach island-type areas are going to see people that don’t necessarily need to be based in New York – that can live anywhere, they’re going to put their fulltime residence in Florida.”
Mr. Polsinello and his wife, who are in their late 50s, spend part of the year at a condo in Naples. They have considered making Florida their official residence for a number of years. Taxes, along with their enjoyment of the Naples area, both come into play.
“We’re trying to make that decision, when do we make that move to make it our full-time residence?” he said. “Because of the tax law it could be significant savings for us to do that, so you’ve got to take a hard look at it financially.”
One of his business partners, and three friends, are looking at making Florida their official domicile as well, he said.
“One friend moved to Port Charlotte,” he said. “One’s looking at Bonita (Springs). And the rest are looking in Naples.”
Luxury properties in Collier County have been hot in the first quarter; some feel the $10,000 cap may have played a part. Home sales priced above $1 million in Naples during the first three months of the year were up 61 percent, according to the Naples Area Board of Realtors, and pending sales of condominium’s priced at $2 million or more were up 109 percent from the same time last year.
“The higher-priced homes are surprisingly doing well,” said Michael Kilbourn, a financial and wealth preservation planner in Naples and coauthor of The Florida Domicile Handbook. “That’s kind of a sweet spot in the $2 to $4 million range, possibly because of the incentive given by the change in the income tax law.”
Along with its sunshine and coastlines, Florida has long been sold as a tax-friendly state. The cap on SALT deductions could be a tipping point that pushes some high-income residents in other areas of the country to look at calling Florida “home.” But to take advantage of the Sunshine State’s lower taxes they would have to disconnect from their current home state, which isn’t always easy.
Mr. Kilbourn stresses that becoming a Floridian is not as easy as buying a home here and declaring it your domicile. The Sunshine State may be happy to have you pay taxes here without much trouble. A new Florida driver’s license, electing a homestead exemption on a home, registering to vote, and changing your mailing address are among a simple checklist of to-do’s.
But states where you stop paying taxes will likely audit the decision, especially for high-income earners. If the state decides it has evidence you still live there, the decision could ultimately go before a judge.
“You have to prove your intent to make (Florida) a domicile,” Mr. Kilbourn said.
Owning a home could help prove that intent, but there’s no rule against renting. Though each state has separate requirements, New York generally will claim you as its resident if you have a home there and spend 183 days or more in the state per year. It may also look at credit card statements, the clubs you belong to, where your kids go to school, where your business is located, and other considerations.
Mr. Kilbourn added that in one case an audit from New York required a man to come up with the number of cell phone tower pings from his phone to prove he was no longer living there. If you have homes in two states, there is even an app called TaxBird that tracks your whereabouts and gives you alerts when you are nearing your state “residency threshold.”
For Mr. Polsinello, making Florida home for tax purposes means he may have to give up the title of president and CEO of his company in New York. On the other hand, he notes, the internet makes it easier these days to work from home, wherever that may be.
“We’re still developing that final plan in what we have to do to comply” with New York state laws, he said. “We have lawyers involved, accountants involved, to make sure we comply with the laws.”
A handful of clients in northeastern states including New York, New Jersey, Rhode Island, Maryland and Virginia have inquired about moving to Florida or accelerating plans to come here – potentially to retire – after the tax law was signed, said Rick Fioretti, a broker associate with Berkshire Hathaway HomeServices in Naples.
“Yes, I have had people call me and say, ‘I was thinking about doing this a few years from now, but now with the current tax changes I’m going to leave my northern property sooner, rather than three to five years from now,'” he said
And a smaller number of clients, “just one or more here or there,” he said, have made appointments to come down within the next month, buy a home and declare Florida their official domicile in response to the new tax law. While he doesn’t expect to see a flood of wealthy people migrating here because of the $10,000 cap – at least not right away, as states like New York are already talking about work-a-rounds to the rule – it could be one more selling point for Florida.
“Our theory from a marketing standpoint is it’s cheaper to own and operate a home in Florida,” Mr. Fioretti, said. “We’ve always been attractive, this helps us be even more attractive.”
Some clients from northeastern states who also have Florida homes are “a little sticker shocked” by the $10,000 cap, but are waiting to see how their own states respond to the new rules, said Julio Barina, a CPA and tax manager with the Fort Myers and Naples accounting firm Markham- Norton. “The representatives from New York and New Jersey and California, all these high-tax states, they’ve been grumbling whether or not they’re going to come up with some sort of work-a-round to this $10,000 rule,” he said. “So it might be a little early to tell.”
Gary Nagle, an attorney and general counsel for the Palm Beach Board of Realtors, agreed.
“It’s just too early to tell what the impact of the tax law’s going to be,” he said. “I haven’t yet seen a situation where someone has made the decision to move to Florida because of the cap on local taxes.”
Mr. Nagle feels people in places like Manhattan or elsewhere would rather pay more in taxes and keep their lifestyle; after all, they’ll still be wealthy after taking a hit because of the new rule.
“They go on with life as they know it,” he said.
Still, some have shown interest in buying a home in Florida as well as moving businesses here as a result of the $10,000 cap and other reasons.
“When (news of the new law) first came out in late November, we fielded a lot of calls from our high-net worth clients in New York and Massachusetts and whatnot, in moving or purchasing a home or creating more permanence here in Florida,” said Kenneth Rios, state and local tax partner with the CPA and advisory firm Kaufman Rossin, which has offices in Fort Lauderdale, Boca Raton, Palm Beach Gardens, Miami and Naples. “They’re concerned what the impact would be on their personal taxes, and some of them are trying to be proactive and stay ahead of this. Could they move here? Could they move their businesses here?”
The Business Development Board of Palm Beach County could also use the $10,000 cap along with Florida’s no income tax as another selling point to lure out-of-state businesses.
“I think you’re starting to see a tipping point of CEOs of specifically financial service firms that are looking at the more tax-friendly states,” said Kelly Smallridge, the board’s president and CEO.
Copyright © 2018 Florida Weekly, Evan Williams. All rights reserved. Florida Weekly staff writer Robbie Spencer contributed to this report.