Michigan Snowbird: Should You Make Florida Your Primary Residence?

I’m writing this is the midst of another “polar vortex”. The car read negative twelve as I made my way through the icy wonder that is Michigan in February. The conversation with my parents at their Florida home didn’t help much either. I’m sorry that you can’t use the pool for a few days because it has been getting a little chilly at night. It was also not much of a surprise when I got a couple calls this week from clients down in Florida. A client called letting me know that he was planning on staying down in Florida so that he could claim permanent residence. He made it sound like a no brainer, “I’ll finally be able to stop paying those Michigan state taxes and save a bunch of money”. He was surprised when I told him, in fact, he may not have much savings at all. This article addresses if you should make Florida your primary residence if you have a home in Michigan too.

This post assumes that you own a house in Michigan and either rent or own a place in Florida in the winter. In this situation, as long as you meet the requirements, you have the decision to make Florida or Michigan your primary residence.

Requirement to make Florida your primary residence

In order to be able to claim Florida as your primary residence, you must live there for more than half the year. This is the first, and probably biggest requirement, but it isn’t the only one. Just living in Florida for 183 days a year, does not automatically qualify you to to change from a Michigander to a Floridian. According to the balance.com, here are some things you will need to do to become a Florida resident.

 

  • Complete a Declaration of Domicile Form – This is a county specific form, that declares your intention to become a Florida resident. You will need to complete the form, have it notarized, and mail or bring into your county of residence. For an example, here is the website for Broward County which explains completing the Declaration of Domicile form.  
  • Obtain a Florida driver’s license – If you are going to be a Florida resident, you will need to change your license. This should be completed within 30 days of completing the Declaration of Domicile form.
  • Register your vehicles in Florida and change your insurance – More on this later, but a potential benefit of making your Florida your primary residence is not having to pay the high Michigan car insurance costs.  
  • File final Michigan state taxes – You’ll need to let Michigan know that you are changing your primary residence to Florida.  Unfortunately, this means much higher taxes on your property if you own a home here in Michigan. More on this later too.  

 

There are other things that you can do as well:  Update your estate plan, change your bank to a local Florida bank, register to vote in Florida, and if you own a home in Florida you can apply for Florida homestead exemption  You don’t necessarily need to do all of these things, but the more you do, the more it shows that you have officially become a Florida resident.

The tax benefit of making Florida your primary residence

Sure, there are a lot of non-financial benefits of making Florida your primary residence.  Golf courses aren’t ever covered in two feet of snow. You’ll never see that pesky negative sign in front of the temperature ever again.  Wind chill. However, many people make Florida the primary residence because of the tax benefits. More specifically, you do not need to pay state income taxes when Florida is your primary residence. This can be a huge benefit. We’ll talk more specifics later, but saving on Michigan taxes can equal big savings. Michigan has a 4.25% tax rate on income, which can really add up. The taxes on $50,000 of Michigan income is $2,125 and on $100,000 of income is $4,250! Saving a few thousand dollars per year is no small thing. However, it may not be as beneficial as you think.

The tax disadvantage of making Florida your primary residence  

Contrary to what some people believe, just because you may save some on state taxes, you are not always better off. In fact, you may end up paying more in taxes if you switch from Michigan to Florida as your primary residence. This is because of the Michigan homestead exemption. More specifically, you are able to get a tax reduction on your real estate taxes if Michigan is your primary residence. As soon as you make Florida your primary residence, you lose this exemption. This can result in a pretty big tax penalty. Each city and county will vary, but you will see about a 40% increase in your property taxes once you lose the homestead exemption. Currently paying $4,000 in real estate taxes? Be ready for a nice $1,600 tax increase. The higher your real estate taxes, the less beneficial it is making Florida your primary residence.

These rates are from the Michigan Treasury and honestly they seem a little high.  We will be using the actual value of your home, but if you are doing your own calculation on the website, the SEV (state equalized value) is ½ of the actual value of your property.  Let’s take a look at 3 different cities.  

Novi:  Oakland County (Novi Schools)

Property Value Resident Taxes Non-resident Taxes Difference
$100,000 $1,883 $2,636 $753
$250,000 $4,708 $6,589 $1,881
$500,000 $9,415 $13,178 $3,763

 Grand Rapids:  Kent County (Grand Rapids Schools)

Property Value Resident Taxes Non-resident Taxes Difference
$100,000 $1,776 $2,675 $899
$250,000 $4,415 $6,688 $2,273
$500,000 $8,830 $13,375 $4,545

Traverse City:  Grand Traverse County (Traverse City Schools)

Property Value Resident Taxes Non-resident Taxes Difference
$100,000 $1,843 $2,743 $900
$250,000 $4,606 $6,856 $2,250
$500,000 $9,213 $13,713 $4,500

Your Michigan state taxes may not be as bad as you think

The other big part of the equation here is the actual amount that you are paying in Michigan state taxes. Your real estate taxes will go up if you make Florida your primary residence, but you will save on state taxes. If the amount that you save on Michigan state taxes is higher than the increased real estate taxes, you are probably better to move to Florida. If not, you are probably better keeping Michigan your primary residence. The truth is that Michigan state taxes are not that high in retirement for a lot of people. I broke down Michigan retirement taxes in detail in this article.

The Michigan state tax rate is a flat 4.25%, but there are a few reasons why you probably aren’t paying this much in retirement.

  1. The first $4,000 ($8,000 if married) of your income is tax-free from Michigan state taxes
  2. Social security income is not taxed by the state of Michigan
  3. Based on your age, some or all of your retirement account withdrawals and pensions may be Michigan state tax free

As a reminder, Michigan exempts some income from pension and retirement withdrawals based on when you were born. From my post “Michigan Taxes in Retirement”:

If you were born before 1946:  If you are single, nearly the first $50,000 of pension and pre-tax withdrawals are Michigan state tax free.  If you are married, roughly the first $100,000 of pension income is state tax-free.

If you were born between 1946 and 1952:  The first $20,000 if you are single and $40,000 if you are married is state tax free.  

If you were born after 1952:  All pension and pre-tax retirement income is subject to Michigan state taxes.  

If you were born before before 1952, it is likely that you are paying very little in Michigan state taxes.  If you were born after 1952, and a significant amount of your income is from social security, it is also likely that you are paying very little Michigan state taxes.  No, Michigan doesn’t have the tax structure of Florida, and other no-income tax states, but it could be worse.

Other considerations

The amount you pay on Michigan state taxes and the amount your real estate taxes will go up are the big considerations, but they are not the only ones.  

Auto insurance:  I have a little bad news for you if you were hoping to save a ton of money on car insurance by making Florida your primary residence.  Yes, Florida will probably be a little cheaper than Michigan, but maybe not by much. Not surprisingly, according to insure.com, Michigan has the most expensive insurance in the country.  However, Florida is the third most expensive state on average.  

Car Registration:  According to ballotpedia.com, it costs $225 to register a car in Florida. In Michigan, registration costs may be higher or lower, depending on the MSRP of the car you own.  

Florida Homestead Exemption:  Like Michigan, if Florida is your primary residence and you own the home, you will also get a homestead tax break on your real estate taxes. However, the tax break probably won’t be as high as what you get in Michigan. According to the Florida Dept. of Revenue when someone owns property and makes it his or her permanent residence the property owner may be eligible to receive a homestead exemption up to $50,000 of the home’s value.  

Choosing between Michigan or Florida as your primary residence

There are two things that you should do before making the decision to make Florida your primary residence over Michigan.  

  1. Calculate the amount of Michigan state taxes you are paying in retirement
  2. Calculate the amount that your real estate taxes will go up by losing the Michigan homestead tax break

Obviously, if you are going to have a huge tax savings by making Florida your primary residence, it may make sense to make the switch.  However, I do feel like people don’t save as much as they anticipated once we do the math together. Sure, Florida is a fantastic place to visit, especially this time of year.  Tax wise however, it may just not be the tax haven that you anticipated.

Disclaimer:  I’m a financial advisor, but probably not your advisor and don’t know your complete financial picture.  Therefore, please use this as education only and I strongly suggest talking with your financial advisor or tax preparer before implementing any of the above strategies.  

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