Ultra-wealthy buyers from all over the US are moving to Florida to escape the high taxes in their home states. They are buying multimillion-dollar homes and condos to establish residencies.
These out-of-state people are mainly top-earning hedge fund managers, successful entrepreneurs, businessmen, CEOs and, high-paid real estate agents. They are moving from states such as New York, New Jersey, California, Illinois and Connecticut – places with state taxes as high as 13%. Florida has become a retreat for such people because it has no state income tax.
In the US, a vast majority of states levy income taxes. For those who earn at the top level, state taxes are as high as 8.82% in New York, 8.97% in New Jersey, 6.99% in Connecticut and 4.95% in Illinois. California has the highest state income tax in the US: 13.3% for people earning over $1 million. The Tax Cuts and Jobs Act, which was passed back in December 2017, limited the ability of taxpayers to deduct state and local taxes from their federal taxes income.
In 2015, Barry Sternlicht, chairman and CEO of Starwood Capital Group bought a vacant lot on Miami Beach’s North Bay Road and built an expensive mansion for his permanent residence. He also moved his company’s headquarters from Connecticut to Miami. During a keynote session at a real estate event, he said, ‘My generation, the tail end of baby boomers, we’re coming. We’re changing our addresses and coming to low-state taxes.’
Local Real Estate brokers call these people who move to Florida to escape the taxes, ‘tax refugees’. They account for 90% of people looking for high-end listings and properties costing over $10 million and $15 million.
When different buyers are asked why they were moving to Miami, all answered that it is for tax reasons.
Hedge fund guys make $50 to $150 million per year, and they then come down to Florida and buy a house for $10 to $20 million. With their tax savings, they get a free house within five years and they live in paradise.
Taxes are not the only thing drawing these buyers to Florida. Sellers are cutting down on their prices, especially on the high end of the market, where the inventory is excessive. As you go up in price point, days on the market increase and months of inventory increase significantly. Everything is price sensitive and becomes comparable.
However, changing state residencies to avoid these taxes is not very easy. You have to provide proof that you are not in your former home state for more than 180 days a year. You must, also, secure a driver’s license and follow certain other legal requirements in the new state. Florida also has property taxes of 2% of the assessed value, which is a lower rate than that of half the states in the country.