note that contrary to what many people hear, there is absolutely no difference
in treatment between US citizens and foreign nationals when it comes to any of
the taxes mentioned here, other than the FIRPTA withholding on the sale of your
property (which applies to all foreign nationals).
Here are the taxes you will come across:
FLORIDA STATE DOCUMENTARY STAMP TAX (applicable when
transferring interest in real estate)
1) ON THE DEED
by the State at $0.70 per $100 of value of any interest in property transferred.
In our Central Florida area, this is traditionally paid by the seller at
2) ON THE LOAN AMOUNT
by the State at $0.35 per $100 of the amount loaned. Paid by the buyer
(borrower) at closing, or whenever a new loan is taken out (such as
refinancing). There is also a Florida State Intangible Tax of .002 levied on the
loan amount (example $200 on a $100,000 loan).
INCOME TAX (only applicable when you make a profit
from renting your property)
If you are renting out your property, US federal income tax is payable on
your net profit from your rental activities (there is no state income tax in
Florida). Net profit is what you have left over from your rental income after deducting
all the expenses of running your property, your US mortgage interest and the
allowed tax depreciation. This is reported on a US tax return which is due
every April 15 for the previous year. In the majority of cases, net taxable
income is minimal enough to have little to zero tax liability. If you do have
any US income tax liability, although you will most certainly have to report
your US income on your tax return in your home country, there is no need to
worry about double taxation because most countries have a tax treaty with the
US, where you can claim a foreign tax credit on your home country tax return.
We strongly recommend
that you consult with an accountant, either here locally, or in your home
country. We will be happy to recommend a couple of local accountants in our
area who are highly experienced in working with foreign nationals, particularly
from Canada and the UK. We also strongly recommend that even if you have no tax
due on your rental property, that you still file an annual tax return, because
this will make things easier for you when you come to sell your property.
SALES AND TOURIST TAX (only applicable when you rent
your property as a short term rental)
Rentals for 6 months or less are subject to a Florida State sales tax of
6%, a local tax of between .5% and 1% and also a County tourist tax (between 4%
and 5%, depending on the County). You or your property management company will
originally register for these, then each month, you must file and declare the
rents you have charged. You must file monthly even if you have had no rents
that month, otherwise you will be charged a penalty. Sales and tourist taxes do
not actually cost you anything, because you charge the tax to your guest and then
remit this tax to the government. Long term rentals (for more than 6 months to the
same tenant) are not subject to sales and tourist tax.
If you have someone (such as an accountant or management company) preparing
and filing these returns on your behalf, we strongly recommend that you ask for
copies of the filed returns.
TANGIBLE PROPERTY TAX (only applicable when you rent
your property or own a business)
If your property is used for short term rentals, it will more than likely
be classed as a business (and you benefit from that, because you are able to
deduct expenses). Up until recently, if your property was a furnished
short term rental, every year by April you had to complete a Tangible
Personal Property Tax return (either your accountant or your Property
Management company may have helped you to do this). You would then receive a
bill from the county at the same time as the property tax bills come out. This
tax was usually a very small amount - say $100 to $300 and covered all the
stuff you have in your house which makes it into a business - such as furniture
and housewares! You can't run a short term rental without furniture and the
county knows you have it! Each year, businesses pay a small tax for the
assets in that business. In your case, the furniture and housewares are your
business assets. However, there is now
an exemption on the first $25,000 of tangible personal property, so most short
term rental properties will have no tax to pay. You must still file an initial
return in order to qualify for this exemption, so check with your accountant.
PROPERTY TAXES (applicable to everyone who owns real
Of course you will have to pay property taxes on whatever type of
property you buy, whether a rental or personal vacation home or residence. The
taxes are based on the assessed value of the property multiplied by the millage
rate for the particular county where your property is located. A typical yearly
amount for an average $250,000 property would be around $4,000. The bills
arrive every year in November for that entire year (so property taxes are paid
in arrears). You have until March to actually pay the bill, although payment
before this offers discounts. If you have a mortgage on your property, your
lender will usually pay this bill and collect from you monthly with your
mortgage payments. If you have no mortgage, you are responsible for paying the
When you first buy your property, the closing statement will show a pro-rated amount of property taxes, based on the number of days the seller has owned and the buyer will own the property in that year. Because the buyer has to pay the bill at the end of the year for the entire year (property taxes are paid in arrears), the buyer receives a credit from the seller for the amount of days in that year that the seller has owned the property prior to closing.
rumors you hear that non US citizens are discriminated against and have to pay
higher property taxes are completely false! Although there are indeed two levels of property taxes, the higher rate
has absolutely nothing to do with your nationality, or even your State of
residence. This has everything to do with whether or not you actually live in
the property you own. Even those of us who live in Florida have to pay the
higher (non homesteaded) rate on any property we own that is not our principal
residence. You are only allowed one homesteaded property and you must live in
that one property as your permanent residence to get the property tax
exemption. Regardless of how many properties you own in any part of
the world, you can only have one official, legal, permanent residence.
Your official residence is normally considered to be where you spend at least
183 days of each year, where you declare yourself a permanent resident, where
the government recognizes you as legally resident and where you file tax
returns on your worldwide income.
CAPITAL GAINS TAX (only applicable when you sell your
property and have made a profit)
If you have made a profit when you sell your investment property, you are
then subject to US federal capital gains tax, which varies depending on your
personal marginal income tax rate. However, all of the costs of purchase and
sale, as well as the cost of all improvements made during the time you have had
the property, are taken into account in adjusting the cost basis of your
property, so these will reduce your gain. Here is a handy link to IRS info on capital gains tax
Be sure to keep all
receipts for everything you spend. We suggest you hire an accountant to help
you file a yearly US tax return and then use this accountant to file for you
when you sell your property.
FIRPTA (only applicable when you sell your property and
you are a foreign national)
When a foreign national sells a property in the US, the sales proceeds
are subject to an IRS withholding of 10% of the sales price, called a FIRPTA
(Foreign Investment in Real Property Tax Act). This requires the closing agent
(on behalf of the Buyer) to withhold 10% of the selling price of your property
at closing. Your accountant must prepare an exemption certificate prior to
closing, which will authorize the closing agent to hold on to this money until
the IRS allows them to release it to you, usually within 60 to 90 days. If you
have no outstanding tax to pay, your 10% will be released to you. If this
certificate is not presented to the closing agent prior to closing, then they
are obligated to remit this to the IRS at closing and this could then take one
or two years to be refunded. There are a few exceptions to the FIRPTA
withholding requirement, but these are not common in our area.
Here is a handy link to IRS info on FIRPTA
A personal note from Lesley Dolby to our
Canadian buyers and sellers about FIRPTA. . . . .
No one likes to have a 10% withholding by the
IRS for two or three months when they sell their property, because they are a
foreign national. However, as a US citizen, when I sold my two personal
properties in Canada in 2006 and 2008, Canada Revenue withheld 25% from my
sales price, because of being a US citizen. We often hear that people think 10%
is a lot of money, but here in the US, it's definitely not as high as other
countries. Just saying!
Here are some links to relevant informational
website for taxes:
INTERNAL REVENUE SERVICE (IRS)
FLORIDA DEPARTMENT OF REVENUE
ORANGE COUNTY TAX COLLECTOR
OSCEOLA COUNTY TAX COLLECTOR
POLK COUNTY TAX COLLECTOR
LAKE COUNTY TAX COLLECTOR
We recommend you consult with a tax expert for
all tax matters, especially if you have considerable wealth or if you have
complicated family circumstances or concerns about estate planning.
© 2014 Dolby Properties Inc.