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Investing In Real Estate

Tax Implications and Benefits

Here we have provided a brief explanation for the various taxes and provided links to the specific Tax information from the various Authorities.

Federal Tax

  1. Expense Deductions. When you pay interest for investment property you may deduct the amount of interest according to what you pay. You may also deduct any investment expenses according to the IRS criteria. Below you will find links to he Investment Expense section of IRS Bulletin 550.

  2. Sale of Primary Residence. For those who have decided to make full use of the Tax Exemption for Primary Residences, this exemption allows for the first $250,000 (Single) or $500,000 (Married) profit from the sale of your primary residence to be exempt from federal capital gains tax. The Criteria for this is that you lived in the residence for at least 2 of the last 5 years. This means that you can legally not pay any tax on gains from the sale of your personal home every 2 years. This can almost be considered a career to those of us who make full use and move every 2 years. Below you will find links to the IRS Code on this exemption.  One word of caution, you can only use this exemption once every 2 years.

  3. Capital Gains. The profit from the sale of Investment Property is considered Capital Gains. These gains are either Long Term (Held for more than one year) or Short Term Gains (held for less than one year). Long Term Gains are taxed at a maximum of 15% and Short Term Gains are considered the same as ordinary income and taxed at your normal income tax rate.

  4. 1031 Exchange. The Tax Code 1031 allows an investor to defer tax on gains by reinvesting the total amount or even a partial amount of the gain into like kind properties. This allows you to continue rolling over your profits without having to pay Capital Gains until you actually take some of the profit out. To be eligible for a 1031 Exchange we recommend that you hold for at least a year.

Florida Tax

There are three State Doc. Stamp Taxes which are paid at closing.

  1. Doc. Stamp on Deeds (Usually paid by Seller in Broward Co.) This tax is $.70 per $100 of the Sales price or fraction there of. This is figured by dividing the Sale Price by 100 and Adding 1 for any fraction of 100, then multiplying by .70
    Example
    $100,500÷100=100.5 there is a fraction of point 5 so add 1
    100+1=101
    101x .70=70.70
    Your Tax would be $70.70
  2. Doc. Stamp on Notes. (Usually paid by the Buyer) This Tax is $.35 per $100 (or fraction there of) of all executed notes or promises to pay money (assumed or new notes). This is figured the same method as on Deeds except use .35 instead.
  3. State Intangible Tax on Mortgages. (Usually paid by Buyer) This tax is for the recording of mortgages. This is paid only on new mortgages not assumed ones. It is $.002 per dollar amount of debt.

Local Property Tax
City and County

Because of the varying taxes levied by each local authority it depends on the location of the property. A rule of thumb for Broward County is 2% to 2.5%. Below you will find a link to Broward County Tax Office Calculator. (Note: You need to subtract the closing cost and commission from the sale price to get Accessed Value.)

Broward County Tax Calculator

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