When in Florida, Tom and Mary Porte have made the strategic decision to rent a vacation home each winter rather than buy one.
"The prices recently have been so good, that we have been tempted," Mary admitted, "but we don't want to be down there too long because we still want to be close to our children up here."
Tom said that he has always heard from his friends who own down there that there are plenty of hassles when you own. You have to leave the air conditioning running year-round to fend off the humidity. You have to worry about your property in the event of a hurricane. In addition, you have a second home that needs maintenance and improvements so you spend time when you are there doing that work.
"With a rental, you can just lock the door and walk away when your time there is over. There are no worries," Mary explained.
"We wouldn't want to move down there full time, either, because we enjoy the weather in Illinois most of the year and we want to be close to our family and friends," Tom said. "We just like to drive down in the winter, taking a week to get there so we can stop to see people and play golf along the way. Then we drive back when we are done."
The first few years, the Portes spent their time in Bonita Springs, then moved on to Naples for a few years and now are frequenting Fort Myers. They are gradually learning what they want when it comes to a winter spot and are letting friends direct them to places that fit the bill for them.
"The only way that you can truly investigate a place is by being down there or talking to your friends who have experience with particular communities," Tom explained. "For instance, the place we used to go in Naples was not geared to allow renters to get involved in club functions and activities very much. Since the best way to make friends is to go to functions, join golf leagues or tennis leagues or whatever activity you like and then that progresses to lunch dates, playing cards, etc., we didn't make many friends there. This new place allows us to do everything that an owner does."
Spending time at the local pool is another great way to increase your circle of friends at your winter location, Mary said.
"We have found that Midwesterners tend to gravitate to the west coast of Florida while Easterners tend to go to the east coast," Tom explained. "And if you like warmer weather, you will find that during the winter Naples and Fort Myers are generally six or seven degrees warmer than the communities in the Tampa-St. Pete area."
You should also consider the cost of transportation to and from wherever you choose to spend the winter. Is there a major airport nearby and how much does it cost to travel there?
Snowbirds who are considering buying a second home and making another state their "domicile" or primary home to save on taxes need to examine all aspects and consult their financial planner or tax accountant, according to Tony Massaro, tax partner with Porte-Brown LLC of Elk Grove.
"There is no hard and fast rule about when it makes sense to do this but if people choose to change their residency while maintaining a home in Illinois, they need to dot all of their I's and cross all of their T's," Massaro said.
You have to pass a four-part test. Are you abandoning your Illinois home as your primary home by selling it, renting it or only using it as a vacation home? Is it your intent not to ever return to it as a primary domicile? Have you established a physical presence in another state? Is it your intent to make another state your primary residence?
"A legal case was recently decided. It involved a couple that built a second home in Florida during the 1990s so they could flee the Illinois winters and five years later they found themselves spending less than five months each year in Illinois. So they did a written declaration of Florida residency; changed their drivers' licenses; registered to vote in Florida; did jury duty there; purchased burial plots there; got Florida phone numbers for their cell phones; and established themselves with doctors in Florida. But they didn't sell their Illinois home," he related.
"The Illinois Department of Revenue went after them for $1.8 million in back taxes, claiming that they were still Illinois residents. They ended up winning because they had made all of those changes and because they could prove that they had incurred 73 percent of their expenses outside of Illinois," Massaro said. "So you really have to be thorough and it is smart to maintain logs of your physical presence in the state, along with receipts for purchases and cell phone records."
If you are still working in Illinois, it is very difficult to dispute residency, he cautioned. But you can continue to belong to a social or service club here, according to the ruling, and not legally be considered a resident of the state.
You should also seek counsel from your accountant about which state is more favorable tax-wise before you choose to change your residency. Florida, Texas and Nevada don't have income taxes, but Arizona does. And check to see how each state treats interest income, dividends and retirement income such as pensions, he cautioned.
"Even now, Illinois isn't that bad compared to other states when it comes to taxes on retirement income like Social Security, pensions and IRA income. But that doesn't mean that it is favorable to retirees, in general, because other taxes on gasoline and real estate can outweigh the benefits from a favorable treatment of retirement income," Massaro said.
"And remember that if you had a business here that you sold to your children but still get income from, you owe Illinois no matter where you live now. The same is true if you have rental property here or if you technically work in Illinois," he added.
After all of that, if you still choose to buy a second home in another state, factor in the costs of flood insurance and homeowners insurance, possibly buying a second car, furnishing and remodeling the second home, possible association fees and extras like golf or tennis fees.
Finally, if you are planning to rent that second home for extra income, make sure you choose a location to which renters tend to flock. Buy a place that is close to the main attractions of the area -- beach, city center or theme parks. And make sure that you pick a home or condo that will appeal to the type of renters that your location attracts. If you are close to Disney World, for instance, expect families and buy accordingly. If you are buying in a golf mecca, expect more couples and choose a home or condominium with large and multiple bedroom suites.