Mortgages and Property Tax in Florida

Mortgages and Property Tax in Florida

Many Florida homeowners make the decision to purchase with thoughts of spending long sunny days visiting the parks, beaches and shopping malls. Most don’t stop to consider their short term, medium and long term objectives. Will you rent out the property or keep it for personal use only? What area are you going to buy in? What are the potential running costs? Are you going to pay cash or take out a loan? If a loan, what type of loan?

If you intend renting, consider the tax filing implications and compliance requirements to the local, state and federal US tax authorities. In general, if you rent out your holiday home you are required to display the appropriate licensing and also report and pay local and state taxes.

If you engage the services of a management company they will generally take care of these filings but, as the owner, you are ultimately responsible.

If you were to purchase and rent a property in the UK you would report that income to the Inland Revenue – the same applies in the US. Rental income and the associated running costs are reported on a US Income Tax Return to the Internal Revenue Service. The returns (one per owner) must be filed annually for expenses to be allowed. If tax returns are not timely filed this may impact your release of funds at the time of eventual sale of your property.

When renting the property, running costs may be expensed against the income – management company fees, cleaning, maintenance, travel costs for the owners and mortgage interest are all allowable expenses. Generally where these expenses are applied the result is zero taxable income for the homeowner.

As mentioned above, mortgage interest is a deductible expense on the US income tax return so deciding whether to purchase using cash or a loan is relevant.

When choosing how to make your purchase, there are several options. If you have cash available or can raise or increase a line of credit on UK property (see equity release feature on page 119) you could transfer those funds to the US. Interest on the UK line of credit is a deductible expense in the US providing you can show a clear trail of funds. Buyers may also like to consider a US loan of which there are various products.

ARM – Adjustable Rate Mortgage

ARMs have a fixed rate for the first few years, usually 3, 5, 7 or 10 years. At the end of the fixed rate term the rate will become variable, usually at a margin above one month or three month LIBOR (London Interbank Offered Rate). The amount of margin varies from lender to lender.

There are safeguards built into this payment plan to limit the maximum amount the rate can increase in any one year and also the maximum the rate can increase over the loan term.

The fixed rate of an ARM is usually lower than Term Fixed Rates. There is always an element of the unknown involving variable rates. As a result, this programme may not be suitable for buyers who want total stability of payment.

Fixed Rate Loan

Fixed Rate Loan is the description given to a scenario where the interest rate is fixed for the whole mortgage term, usually 15, 20 or 30 years. Monthly payments won’t change as there is no variable rate element. Not all lenders offer the complete range of products mentioned above and not every lender will offer options for foreign nationals. Regardless of which type of loan you apply for there is certain information to be provided, e.g. evidence of income, assets and liabilities, bank statements and identification.

The US loan process may seem overwhelming but working with a reputable broker will make the experience considerably easier. Mortgage brokers deal with a range of lenders and can match a particular product to the buyer’s needs.

Before you speak with a Realtor (estate agent) or very shortly afterwards, speak with a mortgage broker. This will allow the broker to obtain important information about your circumstances, ask pertinent questions and start to guide you in the right direction. You’ll receive valuable information about the buying process and get an understanding of how the amount of money you can borrow is calculated.

Whilst the buying process can appear somewhat daunting, planning and education is key to successfully purchasing, renting and enjoying time in your Florida villa. Speak to the industry professionals, gather information and follow up references. By engaging the right team to guide you, you will be able to approach your Florida buying experience with confidence then sit back and relax in the sunshine.

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Alan Harding


Originally published in the A Place in the Sun magazine - Issue 126