The Sunshine State is renowned for its vast number of theme parks, local attractions, beaches and shopping malls. Unfortunately, there are also a number of local, state and federal taxes of which Florida property owners should be aware. Use our guide below to make sure that you don’t miss any payment or filing deadlines…
Annual Tax returns are filed to the Internal Revenue Service (IRS), the US equivalent to the UK’s Inland Revenue. The IRS is a bureau of the Department of the Treasury and one of the world’s most efficient tax administrators. All property owners residing outside of the US who receive income from their rental homes, where IRS withholding has not been applied, must file a US Income Tax Return. The US tax year runs January to December and returns are due by June 15th annually.
Various expenses including management company fees, utilities, repairs, maintenance and mortgage interest are considered allowable deductions on your US Income Tax Return. Whether you extend a UK line of credit or take out an Adjustable Rate Mortgage (ARM) or Fixed-Term Fixed Rate product – the interest element may be used to offset rental income.
Tangible Personal Property Tax
This is assessed against the furniture, fixtures and equipment located in businesses and rental property. Tax returns reporting the value of these assets must be filed to the Property Appraisers’ office by April 1st. Tax bills on values in excess of the $25,000 exemption are mailed out on November 1st each year with payment due by the following March 31st.
Property or Real Estate Tax
Thi is (more recognizable in the UK as Council Tax) is payable annually. The Property Appraiser’s Office establishes the assessed value of a property and prepares the tax roll. Tax notices are served to the owner’s last record of address or, where the property owner pays through an escrow account and their mortgage company has requested to be sent the tax bill, the owner will receive a copy of the notice. Tax statements are normally mailed out on or before November 1st each year.
Sales & Use Tax and Tourist Development Tax
If you rent your property for periods of less than six months you are required to collect and pay Sales & Use Tax and Tourist Development Tax on rental income received. Your management company or booking agent may collect and report all Sales and Use Tax and Tourist Development Tax on the rentals that they handle.
However, if you receive rental income in your home country you must collect and report Sales & Use Tax and Tourist Development Tax on this income either through your management company or direct with the relevant authorities. If you choose to deal directly, you can make application to the State and County to set up these accounts.
Local Business Tax
LBT is required by homeowners who rent their US property. Renewed annually to the Tax Collectors Office (in the County where the rental property is located). The application for this license is usually handled by the managing agent but you may also be required to file if you intend renting your property directly.
Capital Gains Tax (CGT)
CGT is payable on the net gain from the sale of a property owned for more than one year. The gain is calculated by taking the sale price less the purchase price and all related costs incurred in the purchase and sale of the property. Other costs such as furnishings (used in rental property) that are included in the sale price are also deducted before calculating the gain. If the property has been used to generate rental income then depreciation and any applicable losses will also be used in the CGT calculation. If a property is sold within one year of ownership then normal income tax rates apply.
FIRPTA Withholding Tax
US Tax law requires that a non-resident alien who sells an interest in US real property is subject to withholding, for tax purposes, of 15 per cent of the gross sales price. The withheld amount is required to be forwarded to the IRS within 20 days of the date of closing. These funds are held until the IRS is satisfied that all taxes due by the non-resident are paid.
Income Tax Withholding - Form W-8ECI
Generally, a foreign person is subject to 30 per cent withholding tax on US source income. In order to receive the more beneficial graduated tax rates (which are applied after allowable deductions) you must submit a completed and signed Form W-8ECI to the withholding agent (booking agent and/ or management company) that receives the income on your behalf. Without this form in their files, they are required by US federal law to withhold 30 per cent of your rental income and pay that amount to IRS.
We understand that the array of taxes and compliance issues can appear somewhat daunting; research and working with industry professionals is the key to owning a Floridian property successfully!