Ask the tax adviser By George Saenz • Bankrate.com

Tax advantage for Florida residents

Dear Tax Talk:
My wife and I plan to buy a villa in Florida in a few months. I am 51 years old and plan to have deferred retirement starting next fall when I will be 52. We plan to live in Florida for more than six months and come to Massachusetts for the remaining months every year.

The question is whether I keep residency in Massachusetts or change residency to Florida in order to save money in taxes. Please advise me what to do.

Thanks,
Nelson

Dear Nelson:
We may not know how to cast a ballot here in Florida, but we do enjoy the advantage of not paying state income taxes. Given that, I think your answer is self-evident: establish residency in Florida. Of course this means -- among other things -- that you will have to register to vote in Florida and risk not having your vote count, but think of all the money you'll be saving in taxes. You should also apply for a driver's license here in Florida: hint, we vote better than we drive. You can even register to vote at the same place you apply for your driver's license, unless you plan to vote Democrat.

You can make a formal declaration of residence to your county's clerk of the court. The clerk should have a standard form of declaration of residency. You should also apply for homestead exemption on your new home. Homestead exemption provides for a $25,000 reduction in assessed property value for residents of Florida. Check with your county's property appraiser's office after purchasing the home.

You should also update your wills and trust documents to conform to your change in residency. You should also consider changing your investment accounts to Florida institutions. You can also visit the state's Web site for additional tax information.

Computing your withholding exemptions

Dear Tax Talk:
I am a single homeowner, claiming myself. I've heard that you can claim "more exemptions" as a homeowner and therefore receive more dollars to take home. If that is correct, is it a good idea and, if so, how do you go about figuring how many exemptions you can take without getting into trouble?

Thanks!
Jaye

Dear Jaye:
You're referring to adjusting your wage withholding to reflect that you will have itemized deductions from home mortgage interest, taxes, charity, etc. These itemized deductions are equivalent to additional personal exemptions for withholding purposes. By changing your Form W-4 to include these deductions, you will increase your take-home pay and reduce any refund due you when you file your tax return.

To figure out how many additional exemptions to claim, estimate your itemized deduction for 2001; it's already too late in this year to adjust for your 2000 itemized deductions. From the total itemized deductions, offset any income you may have on which there is no withholding such as dividends, interest and estimated capital gains. Add to this any adjustments to gross income you expect to have such as deductible IRA contributions, student loan interest, alimony etc.

One hopes the number is still positive, i.e., you had more deductions than income. If the number is positive, subtract $2,500, which is a standard deduction already built into the wage withholding tables. From the remainder, divide the result by $2,800, the dollar equivalent of one exemption and round down. The result would be the number of additional personal exemptions in addition to one for your own exemption that you should claim on your W-4.

Revise your Form W-4 and give it to your employer as soon as possible to begin increasing your take-home pay. IRS has a Form W-4 Calculator on its Web site, although I think it's a little more conservative than what I gave you above.

-- Posted: Dec. 12, 2000

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