Checklist for Florida Property Ownership Success
Whether you have spent months researching on purchasing a property in the Florida sunshine or made a last minute decision based on the desire to have a bolt hole away from the cold gloomy weather – planning is key…
Where to Buy
Decide whether you want to be on the beach or in the heart of Orlando’s attraction area. Coastal area properties tend to be pricier but offer a different type of vacation away from the hustle and bustle of the parks and stores.
How to Buy – Cash or Mortgage – Bank or Mortgage Professional
What differentiates an Independent Mortgage Professional from a bank? A licensed mortgage expert consistently undergoes continuous training. They specialize in mortgages only and partners with several lenders to offer multiple loan products, allowing you to choose the best option. In addition, they often offer lower rates and cheaper costs due to less overhead and adapts to industry changes quickly. In contrast, banks are not required to be licensed and are not held to the same standards and regulations as brokers in terms of testing and ongoing training. They are generally only able to offer limited loan products that they have in-house which may not be the best fit for your needs.
How to Hold the Property
The determination of how to structure the ownership of U.S. real estate can be complex where non-residents are involved. There are advantages and disadvantages ot each approach with no “one size fits all” solution…
- Individual Name – does not attract many of the costs associated with setting up, tax compliance and filing and maintaining and LLC, Partnership or Corporation. Advantageous capital gains tax rates.
- U.S. LLC (Limited Liability Company) – “Flow-through for sole members”; taxed as an individual
- Partnership (more than one member); consider for married owners – personal tax rates; limited liability; does not avoid US Estate tax
- U.S. LLP (Limited Liability Partnership) – Limited liability suitable for multiple owners; each gets personal allowance; avoid double taxation from UK and Canada; does not avoid US Estate tax
- U.S. C-CORP (Corporation) – Higher taxes on profits and distributions/dividends including potential withholding; limited liability; avoids US Estate tax
- Foreign Corporation – Owning property directly or through vehicle(s) above; exposure to branch profits
What are the Local, State and Federal Tax and Filing Compliance Requirements?
Income Tax – All property owners residing outside of the U.S. who receive income from their rental homes, where IRS withholding has not been applied, must file a U.S. Income Tax Return. The U.S. tax year runs January to December and returns are due by June 15th annually.
Tangible Personal Property Tax 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.
Property or Real Estate Tax (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.
Local Business Tax is required by homeowners who rent their U.S. property. Renewed annually to the Tax Collectors Office (in the County where the rental property is located).
Capital Gains Tax (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.
FIRPTA Withholding Tax – U.S. Tax law requires that a non-resident alien who sells an interest in U.S. real property is subject to withholding, for tax purposes, of 15% 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.
We understand that the array of taxes and compliance issues can appear somewhat daunting; education and working with industry professionals is key to successful and stress free U.S. property ownership.