Florida tax on Real Estate

[northendgolfer]

We are looking at buying a condo in Florida and we are non-residents. We are looking at something under 250k. We would like to rent it out and use it some of the time. What are the tax implications when we sell the property? How much tax are we charged? Can we write off any expenses incurred during the sale against that tax?

 

[FlyingRon]

Essentially you prorate the tax issues between your personal and business (rental) use. So if you rent it for 9 months and use it personally for 3 months, then you have a 75-25% split.

You declare your gross rental income and you can take off that 75% of the mortgage interest, insurance, property taxes, upkeep, off that and what is left (if any) is your income. On your taxes, you take 25% of the taxes paid and mortgage interest and you can put that on your itemized deductions (subject to the various caps and standard deduction).

When you sell you owe capital gains on the difference between the sales price and the basis. Selling expenses come off of that (for both your residential and business use). You'll have to recapture the depreciation (whether you took it or not). Since this isn't going to be your principal residence, you do not get to use the capital gain exclusion to avoid tax on the gain.

Note that capital gains is a FEDERAL thing. There's no personal income tax in Florida.

Here's a pretty good description I found googling: https://www.trustbgw.com/question/rent-vacation-home-part-year-considered-income-tax-consequences/

 

[LdiJ]

Essentially you prorate the tax issues between your personal and business (rental) use. So if you rent it for 9 months and use it personally for 3 months, then you have a 75-25% split.

You declare your gross rental income and you can take off that 75% of the mortgage interest, insurance, property taxes, upkeep, off that and what is left (if any) is your income. On your taxes, you take 25% of the taxes paid and mortgage interest and you can put that on your itemized deductions (subject to the various caps and standard deduction).

When you sell you owe capital gains on the difference between the sales price and the basis. Selling expenses come off of that (for both your residential and business use). You'll have to recapture the depreciation (whether you took it or not). Since this isn't going to be your principal residence, you do not get to use the capital gain exclusion to avoid tax on the gain.

Note that capital gains is a FEDERAL thing. There's no personal income tax in Florida.

Here's a pretty good description I found googling: https://www.trustbgw.com/question/rent-vacation-home-part-year-considered-income-tax-consequences/

He has another thread with the same question that I answered. If you will note, he asked about the tax implications when/if he sells the property. I answered that on the other thread, not realizing that there were two.

 

[Taxing Matters]

We are looking at buying a condo in Florida and we are non-residents. We are looking at something under 250k. We would like to rent it out and use it some of the time. What are the tax implications when we sell the property? How much tax are we charged? Can we write off any expenses incurred during the sale against that tax?

IRS Publication 527 will tell you most everything you need to know.

 

[quincy]

northendgolfer’s other thread, same question:
https://forum.freeadvice.com/threads/florida-tax-on-condo-rental-sale.657451/

 

[northendgolfer]

Thanks for the information. On your response you stated on the selling of the unit-"When you sell you owe capital gains on the difference between the sales price and the basis." What do you mean by basis? What is the percentage of tax taken and do you mean the difference in the purchase price and sale price(capital gain). Thanks

 

[LdiJ]

Thanks for the information. On your response you stated on the selling of the unit-"When you sell you owe capital gains on the difference between the sales price and the basis." What do you mean by basis? What is the percentage of tax taken and do you mean the difference in the purchase price and sale price(capital gain). Thanks

Your basis in the property is the amount that you paid for it plus the cost of any major improvements made while you owned it.

So, generally capital gain/loss equals sales proceeds, minus selling expenses, minus basis. So, if you paid 200k for the property and made no major improvements, then sold it for 250k then your capital gain might be 250k minus 20k in selling expenses, minus your basis of 200k for a capital gain of 30k. Then, based on your other income your capital gains tax rate might be anywhere between 0 to 20% based on the rest of your income.

Of course, that is based on today's tax laws. The tax laws could change between now and the year that you decide to sell the property.

 

[FlyingRon]

Note that since he's using this for a rental business, there's also depreciation to figure both annually and when it comes to figuring capital gains on the sale.

 

[LdiJ]

Note that since he's using this for a rental business, there's also depreciation to figure both annually and when it comes to figuring capital gains on the sale.

This is true. I did neglect to take depreciation recapture into the calculation. In my previous example, if the entire 30k capital gain was depreciation that needed to be recaptured, it would be recaptured at ordinary income tax rates. Or part of it would be at ordinary income tax rates if only part of it was depreciation needing to be recaptured.

 

[FlyingRon]

Except that's not quite true either. Recapture is at ordinary income yet capped at 25%.

 

[LdiJ]

Except that's not quite true either. Recapture is at ordinary income yet capped at 25%.

With the new income tax brackets a married couple has to have income above 321,450 before they top the 24% ordinary income tax bracket. Anyone with that kind of income probably isn't going to be asking for info on an internet forum or buying a condo that only costs 250k...and might not be renting it out to the public either.

 

[davew9128]

Except that's not quite true either. Recapture is at ordinary income yet capped at 25%.

This isn't true either. Unrecaptured depreciation on rental real estate is still capital gain not ordinary income. Unrecaptured depreciation on all other business assets is ordinary income.

 

[lasters]

After reading everything described above, I changed my mind about buying a house in Florida. It seems to me that everything is too complicated (I'm also not a resident)

 

[quincy]

After reading everything described above, I changed my mind about buying a house in Florida. It seems to me that everything is too complicated (I'm also not a resident)

This thread is from last November, 2019.

There is a lot to consider when thinking of buying a (second) house/condo in a state other than the state in which you reside - whether buying for vacation purposes or as a rental or both. Gathering information first is smart before rushing into a purchase.