Florida Property Taxes – Reduce Them, Or Your Capital Gains Tax, With These Strategies

Written by admin on May 16th, 2011

If you decide to relocate to Florida, you’ll have property taxes just as in any other state. The good news is that Florida property taxes are very reasonable. The median home value in Florida is 9,500. The average property tax is ,495, which means Florida has the 22nd highest average tax amount in a comparison of all 50 states. As a percentage of a home’s value, Florida property taxes are approximately .79% of the home’s value (28th highest out of 50).

Florida property taxes as a percentage of a person’s income are slightly higher, measuring an average of 2.95% and putting Florida at the 19th highest position in this measurement. So from these statistics, you will likely find that the dollar amount of your Florida property taxes and the percentage of your home’s value that the taxes represent will be similar to or lower than what you pay now. However, if you were earning a salary in Florida, you’d find your property taxes might represent a higher percentage of your annual income than you were paying in your old state.

However, there are two strategies you can use to reduce the amount of tax that you will have to pay. One will reduce your annual property tax, and one will allow you to reduce the tax you will pay on the sale of your home. Unfortunately, only one or the other will apply at the same time.

First, there is the Florida homestead exemption that is applied to a home that is your permanent and full-time residence. In other words, it’s not just your vacation home.

If you do have a vacation home in Florida, you will have to pay full Florida property taxes. However, there has been an interesting change in the IRS laws regarding 1031 exchanges, more commonly referred to as the ‘swapping’ of investment property. Under the IRS laws, an investment or business property can be sold and the proceeds will be tax-free if they are reinvested in a ‘like-kind’ property. However, this meant that homeowners were not allowed to use their own property as a vacation home without risking that it would be considered ‘mixed-use’ (taxable) rather than an investment property.

With the changes in the law, there is now a ‘safe harbor’ for these sales that so that you can enjoy your vacation home in Florida and eventually sell it at a higher value, then roll the proceeds into another home in a tax-deferred sale. The advantage is two-fold; you get to rent the home for the majority of the year, earning income to pay the mortgage. And you get to enjoy the home yourself without losing your earnings to taxation at the time of sale. In order to avoid taxation on the gains as personal income, you need to do the following:

· Purchase the home and keep it for a minimum of 24 months
· For each of the 12 month periods you own it, you must rent it out for at least 14 days of the year at market value
· Stay in it yourself no more than 14 days or 10% of the time you rented it out, whichever is greater.

Remember to always consult your accountant or tax attorney before making a 1031 exchange. The rules can change quickly, and you don’t want to act under a false assumption.

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