Buyers Are Moving to Low-Tax States or Seeking Tax-Abated Homes
In recent years, high-income residents of states like New York, Connecticut, and New Jersey have been reevaluating their living situations, and many are seeking refuge in low-tax states or properties with tax abatements to mitigate the impact of the 2017 Tax Cuts and Jobs Act signed by President Donald Trump. This shift in the real estate market is shaping home-buying trends, particularly in regions like Florida, where the tax climate is much more favorable.
According to Robert Westley, a certified public accountant in New York City, nearly half of his clients—many of whom are residents of high-tax states—are actively considering a move to states with low-tax burdens. “I work with a lot of clients in New York, Connecticut, and New Jersey—so all high-tax states—and we are seeing a lot of them move south, especially to Florida,” Westley told the New York Times. For many of these buyers, the tax changes have become a critical factor when deciding where to live, and the allure of Florida’s no state income tax policy is hard to resist.
The Tax Cuts and Jobs Act of 2017 implemented several changes to the tax code, including capping the state and low-tax (SALT) deduction at $10,000. Prior to this, many residents of high-tax states like New York could deduct far more—up to $60,000 on average—thereby lowering their overall taxable income. In Manhattan, for example, roughly half of taxpayers took advantage of the SALT deduction. However, under the new tax reform, this cap has left many residents paying higher federal taxes than before, making it financially advantageous to relocate to a state like Florida, where there is no state income tax.
The impact of these tax changes has been particularly noticeable in Florida’s housing market, which has experienced a noticeable uptick in demand. In Naples, Florida, sales of single-family homes priced at $2 million or more surged by 25 percent in the second quarter of 2018, compared to the same period the previous year. While it’s difficult to directly attribute the increase in sales to the tax reform, real estate professionals believe it’s playing a role in the rising demand for homes in low-tax areas.
Niklas Ahola, a broker for Compass in Naples, has seen a significant number of high-tax state residents flocking to Florida, particularly New Yorkers. “I have about 10 clients, including three from New York, who are fleeing high-tax states,” Ahola said. The trend is not limited to just luxury homes—buyers of all price points are finding Florida’s tax advantages attractive.
For some buyers, the answer isn’t relocating to another state altogether, but rather seeking properties with tax abatements that can help offset the higher property tax burden in places like New York City. These abatements, which reduce or eliminate property taxes for a specified number of years, have become a highly sought-after incentive for homebuyers looking to reduce their monthly costs in low-tax environments.
One such example is Rebecca Miller, who, along with her husband, purchased a two-bedroom unit at 550 Vanderbilt, a luxury building in Brooklyn with a 25-year tax abatement. “It was a huge factor in our decision to buy here,” Miller said, noting that taxes on their unit are only $42 per month, compared to the roughly $1,500 per month they would have paid without the abatement. Tax abatements like this offer significant savings, and for buyers in expensive real estate markets, they can make a substantial difference in affordability in low-tax environments.
The growing popularity of tax-abated properties in high-cost areas like New York City is a direct result of the SALT deduction cap. As buyers feel the squeeze of higher taxes, they’re more inclined to look for properties that offer some form of financial relief. Buildings with tax abatements, such as those offering 25-year or longer terms, have become particularly attractive to potential buyers who may otherwise be priced out of these markets.
While tax considerations are a key factor for many buyers, it’s not just about saving money. The move to low-tax states like Florida represents a shift in lifestyle as well. Florida’s sunny weather, robust economy, and lack of state income tax have made it an increasingly attractive destination for people looking for a change of pace. The appeal of living in a state that offers both financial advantages and an enviable lifestyle is hard to resist, and it’s evident in the growing number of people flocking to the Sunshine State.
In conclusion, the tax changes implemented by President Trump’s 2017 tax reform are continuing to have a significant impact on the real estate market. Buyers from high-tax states are flocking to low-tax states like Florida or seeking homes with tax abatements to reduce their financial burden. As the housing market continues to adjust to these changes, we can expect this trend to play an even greater role in shaping where and how people choose to live in the years to come. Whether relocating to a tax-friendly state or investing in properties with tax incentives, buyers are looking for ways to protect their financial well-being while securing a comfortable home for the future.
Adi Zilberberg – Miami Luxury Real Estate Expert