The headlines have been dramatic, numerous, and unavoidable: “NYC mansion tax driving more New Yorkers to Florida” says Fox Business News… Business Insider writes “Rich New Yorkers are fleeing to Miami to escape high taxes”… “Out-of-State Buyers Flock to Miami” observes The Wall Street Journal.
As a busy Miami real estate agent who specializes in luxury residential properties, I certainly appreciate the attention generated by this media coverage and how it may inspire future buyers in need of my services. But does it paint an accurate picture of what’s actually happening? Have the legions of foreign buyers, who in years past couldn’t wait to buy whatever Miami real estate came out of the ground, been replaced by waves of desperate domestic “refugees” bolting from tax-heavy states like New York, New Jersey, California and Illinois?
JUST THE FACTS
Some of the facts would seem to confirm this trend.
Changes to the federal tax laws have certainly hit high-income earners in these states very hard (capping the deduction for state and local income and property taxes at $10,000), in addition to new onerous state and local taxes. The Wall Street Journal cited US Census data that demonstrated, “…Florida had the highest level of net domestic migration from July 2017 to July 2018…New York was the largest overall population loser, followed by Illinois. Florida also has been steadily creating jobs in recent years, gaining 231,000 jobs in 2018, a 2.7% increase over the previous year...” The Journal also pointed out that all 10 counties with the biggest growth in internet searches of Florida properties over $1 million in 2018 (including Nassau County, N.Y., and Morris County, N.J.) have higher effective real estate tax rates than Florida’s.
There have also been some recent eye-popping Miami condo sales to buyers from high-tax states, including the $13.25 million purchase at the Continuum South by a fitness guru from California, the $9.3 million acquisition of a Murano at Portofino unit by the daughter of a prominent Chicago art collector, and another Continuum purchase, for $6.8 million, by the daughter of the former owner of the Philadelphia Inquirer. Anecdotally, many of my colleagues have also recorded a sharp uptick in calls and contacts from domestic buyers.
And what about me, you may ask?
I have certainly added in recent months a number of New York- and California-based clients who have already bought or are thinking about buying Miami properties — and they are very open about their interest in escaping the heavy taxes in their current home states.
However, while their interest is strong and serious, these particular buyers are in no rush to move here just to avoid the taxman.
On the contrary, they are wisely and patiently taking things step by step, with an eye toward eventually relocating to Miami — and changing their residency accordingly. Even my domestic clients who have recently purchased homes in Miami Beach did not immediately claim Florida as their permanent residence, although I believe the eventual tax advantages (should they change residency) played a big factor in their decision to buy now rather than later. (I should mention that purchasing a Florida property does not automatically transfer one’s residency.)
My clients are done with the hustle and bustle of living in busy downtown areas, and are instead targeting newer, high-end condos in areas like Bal Harbour, Edgewater and Belle Isle. (Which are only short Uber rides away from hot spots like South Beach, downtown Miami and Wynwood.)
Generally speaking, these buyers may be winding down their prime working years, but they are still active professionals with strong personal and business ties to their current home states. A change in residency is not a decision they want to take lightly or make rashly.
In fact, for many of these clients, the status of their job and business is a huge concern, and the question of when to make the move is extremely important — especially for New Yorkers.
We have all heard the stories about Big Apple transplants who try to play the game of claiming primary residency in Florida (thus avoiding the tax hit) but spend equal or more time in New York. I wouldn’t recommend it! The state has become extremely aggressive about auditing and taxing those who flout the system.
According to a CNBC report, New York conducted about 3,000 “nonresidency” audits each year between 2010 and 2017, collecting around $1 billion in additional revenue. Auditors are checking credit card bills; travel, cellphone and medical records; social media feeds; and are even conducting in-home inspections to verify residency. The average audit amount between 2015 and 2017 collected $144,270, which likely eliminated any tax savings that may have been enjoyed.
Obviously, my clients don’t want to defeat a major purpose of their moving to South Florida, so they are taking things slowly — and only committing to purchases when they are ready to truly make Miami their primary home. Time will tell if this uptick in domestic interest in our market becomes the “new normal.”
Master Brokers Forum board member Farid Moussallem is the director of international sales at Compass for the Miami Lifestyle Team. He can be reached at 305-519-5397 and/or firstname.lastname@example.org.
▪ The views expressed are those of the writer and not necessarily those of the Miami Herald | Business Monday.