Switching Primary Residence to a no-income-tax state

My primary residence is in Massachusetts (which has a significant state income tax). I also own an apartment in Florida where I live half of each year (FLA has no state income tax). So, to save on state income taxes, I'd like to change my primary residence to FLA.
I'd still live in my current MA house half of each year for, say, the next 10 years. By changing my primary address, as above, I'd lose the advantage of the primary-residence home sale exclusion when I eventually sell the MA house to downsize to a smaller house there.
I'm looking to have my cake and eat it too; i.e. stop paying state income taxes and still get the primary home sale exclusion on my much-appreciated house in MA. I wish I could sell my MA property now, pay any taxes owed (after the $500K exclusion) and then buy it back immediately (probably a sham transaction). Anyway, that would salvage the $500K primary residence exclusion as well as significantly increasing the cost basis of my house in MA. Then when I sell the MA house in ten years hence I would have to pay tax on the full gain (I believe the MA house will not appreciate significantly above the new cost basis during the next ten years.)
Is there any legal way I could have my cake and eat it too?
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My inclination is to say if you actaully live in Massachusetts, pay the damned tax.
But beyond that, to get the exclusion the house has to have been your residence for 2 of the past 5 years. The obvious thing to do is to domicile yourself in Florida now, then move back to Mass. two years before you plan to sell.
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On Tuesday, May 19, 2015 at 3:10:04 PM UTC-4, John Levine wrote:

Thanks, it's a clever idea, but far from ideal because: I'd have to go through the trouble of changing my residence three times; i.e. 1. To Florida right now. 2. Back to MA for two years starting two years before I want to sell. 3. Back to Florida immediately after the sale of the MA house. Also I'd be back to paying MA income taxes for at least the two year period that I'm waiting to sell.
By the way, it's my wife and myself so the exclusion is $500K.
I'm also guessing that the capital gains tax may be greater than the current 20%, especially if Clinton wins.
PS I hope I posted this response to your response in the correct place
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Right. Assuming that you spend your time 50% in each place, that's just paperwork. Yes, you'd pay Mass tax but it sounds like you're near or past retirement so your income in eight years is likely to be less than it is now, so it's a tradeoff between the 5.15% Mass. income tax on two years of income and the 20% to 30% (fed + state) capital gain tax on the house. Seems to me you'd have to have a rather high income and a rather small house for it nor to be vastly cheaper to pay the income tax rather than the capital gain.
Having seen all the discussion that's gone by, I'm still inclined to say either actually move to Florida, perhaps selling the Mass. house now and renting a smaller place for the minority of time you spend there, or pay the damned tax.
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On Wednesday, May 20, 2015 at 11:40:03 AM UTC-4, John Levine wrote:

income and a rather small house for it nor to be vastly cheaper to pay the income tax rather than the capital gain.
Our income is artificially higher than it really is because of mandated IRA withdrawals (RMD) from my wife's and my IRAs (yes, we're both retired). The current capital gain on my MA house exceeds $500,000, so the primary residence exclusion would be maximized. I have no reason to believe that my income will be less in the future.
I want to live in MA for at least 4 but less than 6 months per year. Change in domicile from Massachusetts to FL is no problem.
I want the current house in MA for its convenience (storage for my boats and other toys) and its nearness to the sea. So I won't move to a smaller rented or purchased place. In fact, I'd just as soon pay the damn $100K+ (20% of $500K) before I'd go through the trouble and hassle of even moving to a different but equivalent house. But after 10 years or so I might be willing to downsize.
I don't know how, but I think there is a solution so I can have my cake and eat it too. Perhaps some clever trust setup would work?
I have no plans or wishes to change my status to a decedent:-)
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You haven't liked what we've told you already. If you want a different result, the only way you will possibly find one is if you get a lawyer and accountant in person to sit down with you and ask you all the relevant questions. Perhaps there is something, but it will be highly fact dependent. We will never find it in a group like this.
Good luck.
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Stu
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On Wednesday, May 20, 2015 at 10:01:29 PM UTC-4, Stuart A. Bronstein wrote:

Yes, you're right. I'll probably sit down and discuss my tax dilemma with a real estate attorney. Nevertheless, all of the suggestions in this thread were useful and gave me some ideas to approach a solution from several directions. Thanks to all.
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On 2015-05-20 22:16, lgranowitz wrote:

How did we get from "having your cake and eating it too" to having a "tax dilemma" that needs a "solution"? Asking if there is a legal way to avoid taxes is one thing; not being willing to pay the tax you reasonably owe and going to great lengths, most likely questionable, to get other taxpayers to subsidize your snowbird lifestyle is another.
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"John Levine" wrote in message

Right. Assuming that you spend your time 50% in each place, that's just paperwork. Yes, you'd pay Mass tax but it sounds like you're near or past retirement so your income in eight years is likely to be less than it is now, so it's a tradeoff between the 5.15% Mass. income tax on two years of income and the 20% to 30% (fed + state) capital gain tax on the house. Seems to me you'd have to have a rather high income and a rather small house for it nor to be vastly cheaper to pay the income tax rather than the capital gain.
Having seen all the discussion that's gone by, I'm still inclined to say either actually move to Florida, perhaps selling the Mass. house now and renting a smaller place for the minority of time you spend there, or pay the damned tax.
=============== Note: Spending approximately 50% in each place could indicate that you have NO primary residence at all. A 60%/40% usage (by number of days) of the two residences would be better. Of course, there are other factors: Where you vote, where your children attend school, where your vehicles are registered, community ties, etc.,....
As property sales are sourced to the state where the property lies, you will never escape MA taxes on its sale, unless you never sell it. I don't know what MA does with estates/inheritances, but at least for the federal tax, would it be better for your heirs to inherit and sell the property at no net gain after a stepped-up basis? In the meantime, you still get benefit of the property taxes and perhaps mortgage interest (as your +1 in the "primary +1"), if any.
The suggestion of selling and buying it back does have one economic reality: It resets the base amount subject to property taxes; most likely an increase. So when the rest of the transaction may be considered a sham under income tax, try arguing that with your local property tax assessor.
Someone else suggested a "wash sale" problem. What problem? There is no wash sale because the sale of personal property at a loss isn't deductible anyway.
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Massachusetts requires 100% assessment and every town is supposed to have a three year cycle to update every assessment. So unless the town assessor is unusually incompetent (possible but unlikely) a sale should not change the assessment much.
This isn't California where the law gives a giant tax break to people who don't move.
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On 2015-05-22 15:19, John Levine wrote:

[...]

Not sure how you define "giant", as people who have lived in the same house for 30 years or more might save in the range of $4K-$6K/year in property taxes, and obviously these folks are beyond the age where they still have kids in the K-12 schools. The real problem is the commercial property owners who scam the system via joint ownership schemes which avoid triggering the re-assessment.
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Mark Bole, EA
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Dunno about taxes where you live, but the total taxes on my four bedroom house here in upstate NY in a decent school district is $5800/yr. I'd say a 50% tax break is pretty giant.
In any event, Mass. is serious about 100% assessment, so there may be reasons to avoid selling a house there, but fear of a tax jump isn't one of them.
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The problem was that, in the last 1970's the price of housing in CA rose so much so fast that a lot of people who had lived in their homes for years were forced to sell because they couldn't afford to pay the taxes. So property taxes are essentially frozen at the date of purchase value, plus an inflation factor of up to 2% per year.
As Mark pointed out, a large part of the problem is that the limitation applies also to business and commercial property. Before Proposition 13 business and commercial property were responsible for 40-45% of property taxes collected. Now less than 30% of property taxes come from business and commercial property.

If taxes are based on 100% value and prices go up quickly (in parts of California property values of gone up 50% or more in the last three years), I would imagine that a lot of people would fear a jump in their property taxes.
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wrote:

The problem was that the politicians absolutely refused to do anything about the problem, and just kept taking ever increasing tax revenue. So, the people stepped in and voted in proposition 13. Is it perfect? Of course not. But the politicians had ample time and opportunity to do SOMETHING. And they didn't.
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Not if they have even a moderate understanding of the way that property taxes work. In case it's not clear, 100% of value means 100% of this year's value, not 100% of some number from the past.
The municipality passes a budget which includes the year's total tax levy. They divide that levy into the total assessed value of all of the taxable property, and that's the tax rate. If from one year to the next, the assessments were to double but the levy stayed the same, the rate would be half of the former rate and the taxes would be the same. I was on my village board for a decade and I can assure you this is how it worked.
The problem that Prop. 2 1/2 didn't solve was that before property records were computerized, computing consistent assessments was so hard that assessors didn't even try. They'd update assessments when a parcel was sold, and they'd do it if the owner challenged his assessment (I did that a few times back in the 1980s) but in general they'd just invent a percentage that was their guess of the ratio between the assessed price and the actual values, e.g. 75%, and discount new assessments to make them sort of comparable with the old ones. There were places that hadn't been reassessed for so long that the percentages were below 20%.
This worked well enough back when prices changed slowly and it was typical for people to live in one place long enough to pay off their mortgages. As you note, it doesn't work when prices are changing fast. The correct solution is what other states did, computerize the records and reassess every property on a short schedule, typically a 3 year rotation, so that everyone's assessment stays close to the actual value.
In California, on the other hand, in the dismal tradition of Hiram Johnson, there was Prop. 2 1/2 with short term populist appeal and long term distortions and problems.
More recently California had a problem that no amount of assessing can solve: fake sale prices. Around here, our bankers live in the communities they serve, and they've told me they'd never make a mortgage unless they believe that the borrower can pay off the entire thing out of his or her income. (I refinanced a while ago and the banker, who knew my house from having mowed its lawn when he was a kid, said take a 15 year loan, you can afford it and you'll pay it off. He was right, except that I took his point to heart and paid it off early.) This ties prices to real incomes, and we never had a bubble. In California, houses went for absurd prices unrelated to anything other than someone's hope that they'd be able to flip the house to a buyer even more gullible. In that hyperinflationary environment, prices don't mean much. But that was, I hope, an aberration.
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That is NOT how it worked in California before Proposition 13. The tax rate did not change, and tax bills went through the roof. If the politicians did something like this, or kept the budgets under control, or not to grow by more than the rate of inflation plus the change in population, maybe there never would have been a Proposition 13. But the politicians did nothing other than collect the ever increasing property taxes.
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I believe you, but in a less broken state it would have been as easy to pass a fair proposition mandating 100% assessment on a three year cycle as an unfair one creating a privileged class of people who haven't moved for a while.
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The dollar value of the assessment is immaterial, as long as the comps have the same assessment. I have seen the phenomenon of politicians claiming they "didn't raise" taxes because the mill rate stayed the same -- but the total assessed valuation jumped up significantly. In California two identical properties can have massively different tax bills. I don't see the fairness in that, but that seems to be what people want. In my city (Honolulu) they created a new tax rate for non- owner occupied residential assessed at $1 mil and above (and that isn't a mansion here either). So an increase in assessment of 1 dollar can double your tax bill if you are right at that $1 million point. Of course, non-owner occupied means non-voter owned in most cases so that explains it.
scott s. ..
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Of course. It's the three year cycle that matters. Once you do that, you might as well go to 100% since the comps will all be no more than three years old.

Well, yeah, it's Hawaii. Is that $1M including or without the ground lease?
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There is very little leasehold residential real estate these days. A few holdouts who didn't want to purchase their fee interest. From the days of the leasehold boom, most leases are at or near their end and as such the improvements don't really have much value without the fee interest. But by law property tax includes the lease interest value.
Honolulu (and AFAIK the other counties) have annual re-assessments.
scott s. ..
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