Applying for the Florida Homestead Exemption Can Trigger U.S. Tax Residency

Florida Homeowners have until March 1 to apply for the Homestead Exemption on Form DR-501 to exempt about $75,000 of the value of their home from property taxes.  However, recent immigrants or “temporary” residents with assets outside the U.S. should carefully weigh their options before applying.  This is because a foreigner becomes a U.S. resident for estate, gift and generation skipping transfer tax purposes, not based on how much time they spend in the U.S. (like for income tax purposes) and even in some cases irrespective of whether or not they have a green card.  Tax residency for purposes of these “transfer” taxes is instead based on the intention to make the U.S. their home as evidenced by the taxpayer’s individual circumstances.  By completing Form DR-501, the property owner is affirming, under penalties of perjury, that the property is their permanent residence.  The consequences of an IRS determination that a foreigner is a resident for transfer tax purposes are that any transfer of their assets located anywhere in the world becomes subject to tax, whether they occur during life or upon death.  This can come as a nasty surprise years down the road when a routine income tax audit or an audit of the taxpayer’s estate tax return uncovers gifts of foreign assets between family members, for example, that could have otherwise been made in ways that avoid transfer tax had they been aware of its application.  Another reason multinational families need to meet regularly with a good U.S. tax and wealth preservation attorney who will work with their CPA and financial advisor to help them avoid making expensive mistakes.