Florida Tax Laws
Florida Taxes – A Quick Look
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Understand the taxation system. The US taxation system is a complex one, and may involve payments to at least four different levels of government: local, regional, state and federal.
A Double Taxation Treaty between the US and the UK prevents double payment of taxes.
Income tax, a progressive tax ranging from zero to 35 per cent of taxable income, forms the bulk of taxes collected by the US government.
Florida ranks lower than many other US states in terms of the tax burden it imposes. It is one of only nine states that do not levy a personal income tax. More than half of its non-federal revenue is collected at local level, mostly through property taxes, which, for homeowners, amount to approximately 1.5 per cent of their property’s value per annum.
All rental income in Florida is subject to tax, which is charged on a sliding scale (currently 15 to 34 per cent), depending on the amount. ‘Intangible personal property’ (that is, stocks, bonds, mutual funds and so on) is also taxed.
Florida’s sales and use taxes provide over half of state revenue. Sales tax applies to most retail items (excluding groceries, medicines and certain other items), as well as to car and hotel room rentals and theatre tickets. The rate is currently 6 per cent. Local governments may levy an additional local sales tax of up to 1.5 per cent. The use tax is levied on wholesale items brought into Florida for sale.
Tax Considerations for Foreign Individuals for US Real Estate
1. Property Tax
The local governance charges an annual tax on the value of the property. This normally will be escrowed by WRI Capital Group and charged to you monthly and paid annually for you. The rate is about 1.6% of the value annually in Florida.
2. Income Tax
Any income in the United States must be declared and tax either withheld or paid at normal income rates (See note below)
Each buyer must obtain an ITIN (Individual Taxpayer Identification Number) and file an annual tax return. There will be a charge for preparing tax returns. In this case income tax rates can be as low as 5% to 10% of the INCOME portion of proceeds only. WRI Capital Group will arrange this for you through a Certified Public Accountant.
3. Capital Gains Tax
Upon the sale of the property in the future, the profit is calculated and a capital gains tax rate must be paid. This is currently 15% of the profit (gain).
4. Sales Tax
If you rent your condo for six months or less, you must charge the tenant 6% sales tax plus 5% tourist sales tax on top of his rent and pay the rent to the local governance. WRI Capital Group will do this for you. ( We do not suggest these type of short term rentals.)
5. Estate Tax
Should you die when you own this property or decide to gift it, there will be additional taxes.
There are two kinds of taxes associated with owning residential property, property taxes (which everyone pays regardless of resident or non-resident), and capital gains taxes (due upon sale or disposition of the property).
Under U.S. tax tax law, all persons, whether foreign or domestic, must pay income tax on dispositions of interests in U.S. real estate (U.S. real property interests). Domestic persons are subject to this tax as part of their regular income tax.
Foreign Investment in Real Property Tax Act (FIRPTA), 26 USC 897, is a United States tax provision that imposes income tax on foreign persons disposing of United States real property interests. Tax is imposed at regular tax rates for the type of taxpayer on the amount of gain considered recognized. Purchasers of real property interests are required to withhold tax on payment for the property. Withholding may be reduced from the standard 10% to an amount that will cover the tax liability, upon application in advance of sale to the Internal Revenue Service.
Foreign persons are taxed only on certain items of income, including effectively connected income and certain U.S. source income. Foreign persons, however, are not taxed on most capital gains. FIRPTA treats gain on disposition of an interest in United States real property as effectively connected income subject to regular tax.
In order to ensure tax collection from foreign taxpayers, FIRPTA requires buyers of U.S. real property interests to withhold 10% of the sales price. The seller may apply to the IRS to reduce this 10% to the amount of tax estimated to be due. The IRS routinely and quickly approves such seller applications.
FIRPTA applies in virtually all cases where a foreign owner of a U.S. real property interest disposes of (sells) such interest. Provisions of the law which would prevent recognition of gain generally do not apply unless the seller receives a U.S. real property interest in a qualifying nonrecognition exchange.
Again, please consult a tax accountant before you invest in any real estate in the U.S.
Major taxes collected in Florida include sales and use tax, intangible tax and corporate income taxes. Information regarding these and additional taxes can be located from the list below. There is no personal income tax in Florida.
Florida Sales Tax: Florida sales tax rate is 6%.
Florida State Tax: Florida does not have a state income tax.
Florida Corporate Income Tax: Corporations that do business and earn income in Florida must file a corporate income tax return (unless they are exempt).
Florida Property Tax: Florida Property Tax is based on market value as of January 1st that year.
Taxes in Florida Explained
For decades, Florida has had one of the lowest tax burdens in the country, according to the independent research organization Tax Foundation. For 2013, Florida will place the fifth-lowest tax burden on its residents and businesses. But not all taxes are created equal, and the state collects in a variety of ways that residents need to be aware of.
The strength of Florida’s low tax burden comes from its lack of an income tax, making them one of seven such states in the U.S. The state constitution prohibits such a tax, though Floridians still have to pay federal income taxes.
Florida also does not assess an estate tax, or an inheritance tax. No portion of what is willed to an individual goes to the state.
Floridians no longer need to pay taxes to the state on intangible goods, such as investments. The law requiring that tax was repealed in 2007.
The state charges a 6% tax rate on the sale or rental of goods, with some exceptions such as groceries and medicine. Additionally, counties are able to levy local taxes on top of the state amount, and most do—55 of the 67 Florida counties added local sales tax to the state tax in 2012. The highest amount added to the sales tax was 1.5% by 7 counties in 2012, bringing the total sales tax to 7.5% in those counties; that will increase to 8 counties in 2013. For a complete list of the additional sales tax rates by county, visit the Florida Department of Revenue: http://dor.myflorida.com/dor/forms/2013/dr15dss.pdf
State sales tax needs to be paid for internet or other out-of-state purchases, even if no tax was charged at the time of purchase, or were charged at a rate less than the Florida sales and use tax rate. While this includes taxable items bought in Florida, it mostly applies to items bough outside of the state which were brought in or delivered. Florida residents are required to report these sales and pay the use tax on them personally.
Though the state government does not collect any property taxes, local governments receive much of their funding through these taxes. These rates are assessed at the local level and can vary by county, and they are based on the value of the property. Property taxes in Florida are some of the highest in the country, although there are several exemptions to try to lighten the load on some Floridians.
Property Tax Exemptions
Homestead Exemptions are available on primary residences in Florida. These exemptions can be available up to $50,000. However, only the first $25,000 of this exemption applies to all taxes. The remaining $25,000 only applies to non-school taxes.
Widow(er) Exemptions of $500 are available to widows and widowers who have not remarried. If you were divorced at the time of your ex-spouse’s death, you do not qualify for this exemption.
Senior Citizen Exemptions are available in http://dor.myflorida.com/dor/property/taxpayers/pdf/FLsrhx.pdfcertain counties and cities only. They are valued up to $50,000 for residents 65 years old and older who have gross income below $20,000 in 2001 dollars, adjusted for inflation. This exemption is in addition to the Homestead Exemption.
Blind Person Exemptions of $500 are available to Floridians who are legally blind.
Total and Permanent Disability Exemptions are available for homeowners who have a total and permanent disability. Quadriplegics who use their property as a homestead are exempt from all property taxes. Others who must use a wheelchair for mobility or are legally blind and have a gross income below $14,500 in 1991 dollars, adjusted for inflation, can be exempt from all property taxes as well.
Veterans Exemptions exist in a number of different forms.
A veteran documented as disabled by 10% or more in war or service-connected events can earn an additional exemption of $5,000 on any owned property.
An honorably discharged veteran who is totally and permanently disabled or requires a wheelchair for mobility due to their service can be exempt from all property taxes. In some circumstances, this benefit can be transferred to a surviving spouse.
An honorably discharged and disabled veteran who is 65 or older who was a Florida resident when they entered military service may be eligible for an additional exemption. The disability must be permanent and must have been acquired as a result of the military service. The property tax will be discounted based on the percent of the disability.
Members of the military deployed during the last calendar year can receive exemptions based on the percent of time during the year they were deployed.
Florida collects taxes on many other goods and services residents pay for. Documentary Stamp Taxes are assessed on documents that transfer interest in Florida real property, such as warranty deeds and quit claim deeds. Additional taxes are charged for fuels, tobacco products, communications services, and more. For a full of account of taxes charged in Florida, see the website.
Corporate Income Tax
While individuals do not have to pay income taxes, the same is not true for all types of businesses in Florida. Corporations and artificial entities that conduct business, or earn or receive income in Florida, including out-of-state corporations, must file a Florida corporate income tax return unless exempt. They must file a return even if no tax is due. Sole proprietorships, individuals, estates of decedents, and testamentary trusts are exempted and do not have to file a return. S Corporations are usually exempt as well, unless federal income tax is owed. The Florida Corporate Income Tax rate is 5.5%.
For more information about the types of businesses in Florida, click here.
Reemployment Tax (formerly Unemployment Tax)
Eligible businesses must also pay the Reemployment Tax. Formerly called the Unemployment Tax before being renamed in 2012, this tax is used to give partial, temporary income to workers who lose their jobs through no fault of their own, and who are able and available to work.