Tax Strategies in Florida: No Income Tax, Common Law Rules, and the Homestead Advantage

No. Florida has no state income tax. All income — wages, retirement distributions, Social Security, capital gains, rental income, and pension payments — is exempt from Florida income tax. Federal income taxes still apply. Only Roth distributions and properly structured life insurance policy loans avoid income tax at both the federal and Florida level.

No. Florida is a common law property state — not community property. This is the most important distinction between Florida and the other three states in this practice (Nevada, Texas, Arizona). In community property states, both halves of marital assets receive a step-up in cost basis when one spouse dies. In Florida, only the deceased spouse's half gets a step-up. The surviving spouse's half retains its original cost basis and is subject to capital gains tax when sold. This makes asset titling, life insurance coordination, and Roth conversion strategy particularly important for Florida couples.

Save Our Homes limits annual assessed value increases for Florida homestead properties to 3% or the CPI, whichever is lower. Florida homeowners who have stayed in the same home for many years often have a large "SOH benefit" — taxable assessed value far below market value. This substantially lowers annual property taxes. The benefit is lost on sale; up to $500,000 can be ported to a new Florida homestead within two years. Retirees considering a move should calculate their accumulated SOH benefit before deciding to downsize, as they may lose significant property tax savings.

Florida is one of the best states for Roth conversions because the only cost is federal income tax — no Florida state tax applies. For Florida residents in the early retirement window between stopping work and starting Social Security, filling up the 12% or 22% federal bracket with Roth conversions is often the highest-value lifetime tax move. Converted dollars grow and distribute tax-free, permanently avoiding federal ordinary income tax rates. Reducing the traditional IRA/401(k) balance also reduces future Required Minimum Distributions, which lowers MAGI and protects against IRMAA Medicare surcharges.

IRMAA is a Medicare surcharge that applies when MAGI exceeds $106,000 for individuals or $212,000 for couples in 2025. It can add $1,000–$6,000+ per year per person in Medicare costs. Florida residents often underestimate this risk because they pay no state income tax — but IRMAA is a federal charge and applies regardless of state. A Florida retiree with large IRA distributions faces the same IRMAA thresholds as a California resident. Roth withdrawals, Qualified Charitable Distributions, and careful sequencing keep MAGI below these thresholds.

No. Florida has no state estate tax and no inheritance tax. Life insurance death benefits are income-tax-free to named beneficiaries. The only estate tax concern is federal — applicable to estates exceeding $13.61 million per individual in 2025. For most Florida families, estate planning focuses on avoiding probate, coordinating beneficiary designations, and ensuring orderly asset transfer — not on paying estate tax.

No — and this is critical. Florida homestead provides strong creditor protection during the owner's lifetime, but it does NOT protect the home from Medicaid estate recovery after the owner's death. If Medicaid (Florida's Statewide Medicaid Managed Care or nursing facility Medicaid) paid for long-term care costs, Florida's Agency for Health Care Administration can file a claim against the estate — including the home — to recover those costs after death. Long-term care insurance is the primary tool to prevent Medicaid from ever needing to pay, thereby avoiding estate recovery entirely.

Whole life cash value grows federal tax-deferred and is accessed via policy loans that are generally income-tax-free. Florida adds no state income tax on top. For Florida residents who have maxed qualified account contributions, whole life provides a third tax-advantaged bucket alongside Roth accounts and traditional 401(k)/IRAs. It also bypasses probate, passing directly to named beneficiaries — particularly useful in Florida's common law property environment where asset titling and estate coordination require extra attention. Death benefits are income-tax-free at both the federal and Florida level.

No. Sasson Emambakhsh is licensed in Florida (FL #G322852) to provide life and health insurance products — including term life, whole life, disability insurance, long-term care insurance, and fixed annuities. He does not hold a Series 65 or Series 7 license and does not provide tax advice, investment advice, securities recommendations, or portfolio management. All consultations focus on insurance-based protection and accumulation strategies. Consult a CPA and an estate attorney for specific tax and estate planning guidance.