Florida residency

[mitchden1]

 I'm considering changing my residency from NJ to FL. I spend 7 months per year in FL and most of the remaining months in NJ. Do I have to pay part-year NJ income taxes if I become a FL resident after Jan. 1? I understand that I will lose the 1-time $500K capital gain exclusion if I decide to sell my NJ home in the future. I know there's a formula to retain that exclusion. I've been in my NJ home for almost 50 years and don't have receipts, etc. to document all the improvements/repairs that were done.

I understand that I need to get a FL license and insure at least 1 of of my cars in FL. Besides saving the NJ income tax and possible losing the $500K capital gain exclusion, what other financial considerations s are there? Thank you for your help.

[tagteam]

With respect to actually changing your domicile to Florida see:

https://www.flsenate.gov/Laws/Statutes/2022/0196.015

Also, it would be wise to file the Declaration in your county (the one below is for Miami-Dade).

See https://www.miamidadeclerk.gov/library/county_recorder/578-Web.pdf

[TomD8]

After you establish your domicile (your main, primary home) in Florida, you can only be taxed by New Jersey on New Jersey "sourced" income.  You establish your domicile in Florida on the date you begin living there with the intention (as evidenced by your actions) of making FL your new permanent, primary home.

One example of income "sourced" in New Jersey would be income earned from work actually performed in New Jersey.

Also, a capital gain from the sale of property located in New Jersey is taxable by New Jersey, regardless of your residency at the time of the sale.  Your capital gain from the sale of a home in NJ is calculated the same way as it is for federal tax purposes.  In other words, NJ will tax only the amount of your capital gain that is taxable on your federal tax return.

If you do move your domicile.to Florida, then you will have to file a part-year resident NJ tax return for the year of the move.  All your income up until the date you establish your domicile in Florida would be taxable by NJ. 

This NJ tax publication details NJ's rules on these situations:

https://www.nj.gov/treasury/taxation/pdf/pubs/tgi-ee/git6.pdf

Note that if you spend 183 days or more of a tax year in NJ after your move to FL, then NJ will consider you to be a "statutory" NJ resident, which would make ALL your income for that year taxable by NJ.

[mitchden1]

What is the rule for the capital gain exclusion of $500K (2 people) if I sell my principal residence in NJ in the future - after I become a Florida resident?  I'm considering becoming a Florida resident because I spend 7 months in Florida and I wouldn't have to pay any NJ income tax. I've been in my NJ home for almost 50 years and I don't have receipts of all the improvements that I've made.

Thanks for your help.

[tagteam]

See https://www.irs.gov/taxtopics/tc701

Note that you have to have used your NJ home as your main home for the last 2 years (760 days) out of 5 years leading up to the sale of the NJ home (there is no requirement that the time has to be consecutive.

[mitchden1]

Thanks. Your comment that the 760 days doesn't have to be consecutive is confusing to me. If I become a Florida resident on Jan. 1, 2024, and spend 5 months every year in my home in NJ, when would I have to sell my NJ home and still take the $500K exclusion? Also, after being in my NJ home for about 50 years, how do I value all the improvements I made? Is there a list of what's considered improvements (i.e. appliances, landscaping, lawn maintenance).

[TomD8]

"Is there a list of what's considered improvements (i.e. appliances, landscaping, lawn maintenance)."

You can find a list of common improvements on page 9 of this IRS publication:

https://www.irs.gov/pub/irs-pdf/p523.pdf

Note that ordinary maintenance is not an "improvement".  Also, repairs are not improvements..

In order to qualify for the capital gain exclusion, you must have owned and lived in the home as your primary residence for at least two years of the five-year period leading up to the date of sale.  The two years do not have to be continuous.  NJ and the IRS have the same criteria.

Any taxable gain you have from the sale will be taxable by NJ, as well as by the IRS, regardless of your residency at the time of the sale.

[tagteam]

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@mitchden1 wrote:

Thanks. Your comment that the 760 days doesn't have to be consecutive is confusing to me. If I become a Florida resident on Jan. 1, 2024.....

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The time period, simply, is 2 out of the last 5 years. The fact that you've owned and lived in the home for 50 years is not relevant.

If you become a Florida resident on January 1st of 2024, then you are no longer using your NJ home as your main home (primary residence) as of that date. You would need to sell (and close on) your NJ home within 5 3 years (edited) from January 1st assuming you used the NJ home as your primary residence for at least 2 out of those last 5 years.

[TomD8]

"You would need to sell (and close on) your NJ home within 5 years from January 1st assuming you used the NJ home as your primary residence for at least 2 out of those last 5 years."

If you became a Florida resident (for example) on January 1, 2024, then your 5-year period of "usage as primary residence" would end on that date for your NJ home.  You would then have to sell the house within 3 years of 1/1/2024 in order to qualify for the capital gain exclusion.

[tagteam]

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@TomD8 wrote:

You would then have to sell the house within 3 years of 1/1/2024 in order to qualify for the capital gain exclusion.

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That's correct because you need to count back 5 years and have lived and used the (now prior) home for at least 2 years (edited my post above).

Also, the sale would need to be closed within that time period.

[mitchden1]

If I become a Florida resident on Jan. 1, 2024, do I have to sell and close on my NJ home by Jan. 1, 2027 to be eligible for the $500K capital gain exclusion?  That would be 3 years (2024, 2025 and 2026).

Thanks again.

[tagteam · Accepted solution]

You're on the right track because that would mean you owned and lived in your NJ home (as your main home/principal residence) for the entire years of 2023 and 2022 (counting back 5 years from the close).

I would strongly caution you not to cut this transaction that closely, though. Without an exception (which does not appear to exist in your case), those are drop-dead dates (e.g., if you're off by a week, you lose the entire exemption).