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Six Ways Buying Real Estate Saves You on Taxes

Sunny beaches and perfect winter weather with lots of sunshine are not the only reasons to move to Florida.

Presented by Loeffler & Rooks Morris September 24, 2019

Sunny beaches and perfect winter weather with lots of sunshine are not the only reasons to move to Florida. From high-rise condominiums to luxury waterfront homes, the tax incentives for real estate in Florida make real estate ownership even more appealing in the Sunshine State.

Three tax types that could relate to your Florida real estate purchase are:

  • Property tax: Taxable value on properties that the owners pay to that local municipality
  • Capital gains tax: Tax on the profit from the sale of a home
  • Federal tax: Tax on profit from renting out a vacation home or investment property 

Owning a home has many benefits, such as increased net worth, pride of ownership and a comfortable lifestyle. While these benefits can come at a cost, tax season offers Florida homeowners valuable potential deductions that are important to take advantage of.

No State Income Tax
Probably the biggest advantage  to moving to Florida is that there are no state income taxes. Florida is one of only seven states that impose no income taxes and its climate is actually suitable for most retirees (unlike Alaska or South Dakota, for example). In addition, the Florida Constitution prohibits municipalities and counties from levying any personal income tax.

"A typical family of four [in New York City] will pay 25% of their income in taxes, compared to 14% for the same family of four in Florida” – New York Post.

Property Tax
Both real estate local and state property taxes are deductible, regardless if you pay via escrow account or to the local tax office. Capped at $10,000, the homeowner needs to keep their property tax bills and the proof of payment. Florida also offers the Homestead Exemption. For one, the homestead exemption allows homeowners to protect the value of their homes from creditors in the event of a bankruptcy. if eligible, it also reduces the taxable value of real property by up to $50,000. Appreciation is capped at a 3 percent gain each year.

Inheritance Tax
In Florida, there are no state taxes related to inheritance and the estates of those who have died. The federal government does impose an estate tax that applies to residents of all states, but only if the value of the estate exceeds $11.2 million (since 2018).

Mortgage Interest
With an existing mortgage, Florida allows the legal borrower to deduct mortgage interest payments on tax returns. This deduction does not affect every homeowner, because the interest is only deductible on mortgage debt that totals $750,000, or $375,000 for married couples filing separately. If you purchased a vacation home before 2018, you could also deduct interest payments on the vacation home if the combined mortgage debt is under $1 million.

Energy Efficient Installations
By utilizing the Renewable Energy Tax Credits, homeowners can deduct 30 percent of energy-efficient product costs like geothermal heat pumps, solar panels, and small wind turbines if installed on a home used as a residence. To apply, the homeowner must file the IRS form 5659. Additionally, certain EnergyStar and various other products are eligible for 10 percent of the cost, or up to $500, in tax deductions.

Closing Costs
While services like title insurance and appraisals are not deductible, certain closing costs are tax credited if the homeowner has purchased or refinanced a home. While there are many regulations regarding this, the closing cost deductions include prepaid mortgage interest, mortgage points, and prepaid property taxes. To verify these deductions, homeowners will need to keep the Settlement Statement and a 1098 Form.

Ready to Move?
Life in Florida offers many lifestyle and financial benefits! But nothing is more important than finding the right home and negotiating the right price! The Loeffler & Rooks Morris Real Estate Group has the demonstrated expertise to help you buy your next home in Sarasota. 

*The information contained in this article is not tax or legal advice and is not a substitute for such advice. State and federal laws change frequently, and the information in this article may not reflect your own state’s laws or the most recent changes to the law.

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