Florida and Florida Real Estate – Part II: Tax Benefits of Living, Working, Doing Business, and Owning Real Estate in Florida

By Chacko Zachariah

(Licensed Real Estate Broker and Realtor, Fabulous Homes, Inc., 954-491-7600, [email protected])

Florida offers several Tax Savings and Benefits for Living, Working, Doing Business, and Owning Real Estate in Florida. Florida does not have any State or Local Personal Income taxes nor any Intangible Personal Property Taxes on most items. Florida offers the standard Homestead Exemption and additional Homestead Exemptions based on specific eligibility requirements. It puts an Annual Cap on the Assessed Value of your Homestead Property and allows Portability of the Accumulated Assessment Savings from one Homestead Property to the Next. Florida has a Cap on the Maximum Tax that you have to pay when buying a Yacht or Vessel (for example; even if you buy a US $100 Million Yacht in Florida, the Maximum Sales Tax you have to pay is capped at just US $18,000; instead of the usual sales tax of US $ 6 to 7 Million!). C corporations are the only types of businesses that pay Florida’s state income tax, while other types of corporations and sole proprietorship pay no Florida income tax irrespective of how big they are. In addition, Florida offers numerous Tax Incentives and Tax Credits for Businesses starting, expanding, or relocating to Florida.

(A) No State or Local Personal Income Taxes

Florida is the one of the very few states in USA that has No State or Local Personal Income Taxes. With the new US Tax Laws enacted in 2017, most people in the USA are encountering double taxation, while Florida is the one of the very few states in the USA where you can escape all or some of the double taxation and save money and thus avoid some of the adverse effects from the restrictions placed on the SALT (Sales And Local Tax) deduction. SALT tax includes the State and Local (City) Income Taxes, Intangible Personal Property Taxes, the Local Sales Taxes, and the Real Property Taxes. Thus, with these new restrictions placed on the SALT deduction, most people are now taxed twice on the same earned income. (The famous Boston Tea Party during our Independence struggle almost 250 years ago was on “Taxation Without Representation”.)

It should be of great interest to know that by allowing taxpayers the ability to deduct state and local taxes (SALT), taxpayers avoided double taxation and ended up with more net income. Further, deduction for property taxes along with the full deduction of mortgage interest always provided a strong incentive for individual home ownership which also led to increase in personal wealth and the standard of living. This created a boom in the home building, development, and construction industries, and stimulated real estate, mortgage, finance, other related businesses throughout the U S. This led to a stronger U S economy and brought about a faster and stronger growth of the U S GDP. These were the reasons for the enactment of these laws several decades ago allowing such deductions and had been used by taxpayers for generations for great benefits. However, several Presidents and Congresses, starting in the early 1980s, had been slowly chipping away and ripping off the taxpayers by lowering the amounts of deductions they could take on these items and using the additional taxes collected as a result to subsidize and benefit their favorite special interest groups and use it as additional welfare programs for big businesses.

Since Florida is the only state that also offers that combination of beautiful coastlines, beaches, weather, and island resort style living along with tremendous savings from not having to pay any individual state or local income and other taxes, a healthy and rapid migration to Florida of the well to do and the wealthy has begun to materialize in the last couple of years. They have been buying fabulous properties at bargain prices and are setting up permanent residences and businesses in Florida.

(B) The Homestead Exemption

The Homestead Exemption is a legal principle enacted in various states in USA to protect a homeowner’s primary (permanent) residence (the homesteaded property) from certain types of creditors. In Florida, January 1st of each year is the date on which permanent residency is determined.

The Florida Constitution also provides additional tax-saving exemptions for the homestead property on the first and third $25,000 of the assessed value of an owner-occupied residence. However, that third $25,000 exemption applies only to the non-schools portion of an homestead property’s assessed value.

Further, Florida law allows several other additional Property Tax Exemptions and Reductions for the homestead property owner depending on eligibility. They include:

$500 Disability Exemption
$500 Disability Exemption for Blind Persons
$500 Exemption for Widowed Persons
Additional Exemption for Low-Income Seniors
Full Exemption for Low-Income Seniors who have lived in their home for at least 25 years.
Exemption for Deployed Military Personnel
$5,000 Veteran’s Disability Exemption
Additional Exemption for Combat-Wounded Florida Disabled Veterans
Full Exemption for Veteran’s Service-Connected Total and Permanent Disability
Full Exemption for Totally and Permanently Disabled Persons
Full Exemption for Totally and Permanently Disabled First Responders
Surviving Spouse of Military Veteran or First Responder
Historic Property Exemption for property on the National or Florida Registers of Historic Properties
“Granny Flat” Exemption – Taxpayers who build additions onto an existing Homestead or perform extensive renovations to an existing Homestead to provide living quarters for a parent or grandparent may be entitled to a special exemption equal to the amount of the new construction (up to 20% of the homestead value).

(C) “Save Our Homes” (SOH) Amendment

Further, in Florida, pursuant to the 1992 SOH Amendment to the Florida Constitution, the assessed value of your Homestead property can increase by no more than 3% (three percent) above the previous year’s assessed value or the consumer price index, whichever is less. The Florida Department of Revenue certifies the annual percentage amount for each year. This law capped the maximum the assessed value of your homestead property can increase from year to year. This was a great help to the homeowners.

(D) Save Our Homes Portability Amendment (SOH Portability)

Prior to 2008, even if you had homestead on your property and the assessed value of your Homestead property only increased by no more than 3% above the previous year’s assessed value or the consumer price index, whichever was less, when you sold that property and either ‘up-sized’ or ‘downsized’ to a new home in value, you ended up having to pay higher property taxes on your new home compared to what you had been paying on your previous home, even if it was worth much less than your previous home. This is because: (a) you lost all the “Save Our Homes Savings” that you had accumulated over the years (savings on your home’s assessed value) by owning your previous homesteaded property in Florida, and (b) the assessed value of the your new home is its market value and in most cases is the purchase price you paid for it.

Many homeowners who wanted to ‘up-size’ or ‘downsize’ to a new home for some reason or another were shocked to find that because the property tax on their new home in many cases was much higher than what they had been paying on their previous homesteaded property they would be unable to move and this made their situation untenable.

In order to alleviate this situation and help homeowners, the “Portability of Save Our Homes” Amendment to the Florida Constitution was passed in 2008 to allow eligible homesteaded homeowners to move the accumulated savings on the home’s assessed value from one homesteaded property to another. As a result, Homesteaded homeowners are now allowed to move their Save Our Homes (SOH) benefit up to a maximum of $500,000 from one homesteaded property to another in Florida.

The new law allows that Portability may be used an unlimited number of times and may be used for moves to anywhere within Florida. Portability does not require you to sell your previous home, but merely that you can no longer claim it anywhere as your primary (permanent) residence.

Portability applies to both ‘up-sizing’ and ‘downsizing’ in value of the new property. If the new homestead has a higher just value than the previous one, the accumulated benefit can be transferred; if the new homestead has a lower just value, the amount of benefit transferred will be reduced. The local County Property Appraiser provides these figures for each homestead property in its jurisdiction by calculating it based upon specified formulas mandated by the State Law.

To be eligible to move these SOH Portability savings to a new primary residence, the new homestead must be established within two tax years of the “abandonment” of homestead at the previously homesteaded property. Owners of homesteaded properties sold (or “abandoned as homestead”) are eligible to move their SOH savings to a newly purchased property so long as the owner obtains homestead on the new property within the strict period allowed by law.

Therefore, if you purchase another home as your primary Florida residence and want to obtain Homestead Exemption for that property and if you held a Homestead Exemption on a previous property within the previous two (2) tax-years anywhere in Florida, you must also submit a Portability application with your Homestead application. The Portability application transfers any tax savings you have earned on your previous homesteaded primary residence to the new eligible primary residence, but it does NOT transfer your Homestead Exemption from one property to another. You MUST first apply for a Homestead Exemption in order to be eligible for Portability. Thus, you must submit an application for Homestead Exemption for your new primary residence and also an application for SOH Portability.

(E) Maximum Sales and Use Tax on Boats and Vessels in Florida

Florida residents used to buy expensive Yachts and register them in foreign countries; in the Islands off the coast of Florida and other countries around the world which offered several tax havens and other benefits. In order to encourage large Yacht manufacturing and sales in Florida, to support the Boating and Marine Industries and to bring in more revenues to the state and local governments, the Florida Legislature changed the laws pertaining to selling, owning, and registering Boats and Vessels in Florida in 2010. As a result, the maximum that can be taxed when purchasing a boat or vessel and registering it in Florida is capped at US $18,000!

This $18,000 total includes all sales and use taxes, plus any discretionary sales surtax. This is to encourage purchasing, registering, and using yachts in Florida year round. Thus for example, you can now buy a US $100 Million Yacht in Florida and or register it in Florida and the maximum you get taxed is US $18,000! After that all you have to pay is the nominal annual boat registration license tag renewal fees. For more information and detailed instructions on this maximum tax, please see Florida Department of Revenue’s Tax Information Publication (TIP) 10A01-07 issued on June 22, 2010.

Incidentally, the world famous Fort Lauderdale International Boat Show is celebrating its 60th year this year and will be held from October 30 – November 3, 2019. Similar Boat Shows are held in Miami and Palm Beach and other major coastal towns in Florida every year. Thousands of Yacht manufacturers and dealers from around the world exhibit at these shows and hundreds of thousands of visitors from the U S and abroad come to theses shows. These shows generate billions of dollars worth of business for the boating industry as numerous boats and related equipment are sold, billions for hotels, restaurants, and tourism, and billions of dollars in tax revenues for the state and local governments each year. Further, the visitors to these shows also engage in numerous real estate transactions throughout the regions where these boat shows are held, thus also benefiting the real estate and construction businesses.

(F) Intangible Personal Property Tax

Florida repealed the Intangible Personal Property Tax on most items on January 1, 2007. Therefore, there are NO Intangible Personal Property Taxes on items such as stocks, bonds, mutual funds, money market funds, unsecured notes, certificates of deposits, patents, copyrights, life insurance, partnership interests, etc. There remains intangible personal property tax only on two items: mortgage deeds and leases of government owned properties to nongovernmental entities. This is another benefit to living in Florida. For more information, see the Florida Department of Revenue’s Tax Information Publication, TIP 07C02-01, Dated: January 2, 2007.

Before the repeal of the Florida Intangible Personal Property Tax, individuals possessing intangible property above a certain limit had to file the Florida Intangible Personal Property Tax forms and pay the taxes every year. Now you don’t have to file them anymore.

(G) Florida is a Business Friendly State

Individuals are not the only ones who benefit from Florida’s tax structure. Businesses in Florida pay less taxes than in many other states in the USA. C corporations are the only ones that pay Florida’s state income tax, while other types of corporations as well as sole proprietorships pay no Florida income tax irrespective of how big a business they are.

The State of Florida and its Counties and Cities encourage businesses to operate, relocate, expand, or open branches and divisions in Florida and offer several Tax Incentives and Tax Credits to medium and large businesses to relocate to Florida, set up operations, and create jobs. There are several categories of these incentives and tax breaks and some of them last for several years. Florida tries its best to promote itself as a business friendly state.

Further, in the past three decades Florida has become the gateway for banking, finance, and trade, and other businesses to the Caribbean, Central America, and South America. Therefore, several U S and foreign companies have set up their South American headquarters in Florida for conducting their businesses in various countries in the Caribbean, Central America, and South America while utilizing Florida’s business friendly climate.

Florida’s population has now grown to 22 Million, thus offering a large customer base. When you combine that with its spectacular coastlines and beaches, beautiful weather, vibrant cosmopolitan culture, availability of all the amenities at your finger tips, along with the low taxes and tax breaks for doing business, it sure makes it a great place to set up a new business, expand, or relocate one.

As you can see, Florida is the only state in the USA that also offers that combination of beautiful beaches, coastlines, weather, and resort style living, while also offering all the amenities that you can think of as well as all these tax savings that you obtain from owning Florida Real Estate or doing Business. These show what a beautiful, vibrant, and enchanting place Florida is to live, work, and play as well as a great place to set up a new business or relocate one. Residential properties along Florida’s coastal regions sell for anywhere from the US $300,000s to $100 Million.

Next in Part III of this series on ”Florida and Florida Real Estate” will be a brief explanation of Florida’s Economy and its Real Estate.

Chacko Zachariah, has been a Licensed Real Estate Broker and Realtor with Fabulous Homes, Inc., in Florida, selling Luxury Homes, Condominiums, Commercial, and Industrial Properties for over the past 30 years. He can be reached at 954-491-7600 or [email protected]