Buying & Investing in Florida Real Estate

*Buyers of Pre-Construction Properties: Prior to entering into a purchase contract for pre-construction real estate, please contact me to discuss the practice of the sale of property "off plan". It can affect your escrow/deposit monies.

Purchasing Costs

Real Estate agent’s fees for buyers

There are generally no charges involved for the buyers. You may want to engage a “buyer’s agent” to act on your behalf, assisting you in the search for properties to visit. and providing important information on the property and neigborhood. Payment to that agent is generally made by splitting sales commission between the seller’s and buyer’s agent. Sellers typically pay these fees. The fees are usually negotiated by the seller before the listing of the property for sale.

Legal Costs

In Florida, lawyers are not generally used for property transactions. The legalities are taken care of by “title companies”, which charge a set fee from $150 to $300. But you may feel a lawyer is necessary. Legal fees are not significantly more expensive and you are unlikely to pay more than $600 for a medium-sized property.

Title insurance

This is necessary when buying a property in Florida. It protects you from financial loss if problems develop regarding the rights to ownership of your property. It also pays the cost of defending any claim against you. It costs about 1% of the property’s price, although this may vary.

Mortgages

Generally, buyers are expected to put down a deposit of at least 20%, but this can go up or down depending on your credit and collateral. However, as a general rule the higher the deposit the lower the mortgage interest rate. Multiples of up to 3.5 times salary are usually offered. US dollar mortgages are usually at a fixed rate for a 5, 15, 20 , 30 or 40 year term. Market conditions and rates will vary. Please email me for the most current rate and market conditions - Ellen@Century21.com  

Sales or purchase tax

There are no sales taxes on either purchase or sale. However, there are “closing costs”, which do include the following taxes:

  • If you are buying a property with a mortgage, then you will pay the State of Florida what are known as Documentary Stamps on the amount of the mortgage at the rate of 35 cents for each $100 of mortgage.
  • You also pay an Intangible Tax at the rate of 0.002% on the mortgage amount. So, for example, if you have a $100,000 mortgage, you would pay $350 Documentary Stamps and $200 Intangible Tax. If you are paying cash for the property, you don’t pay these taxes.

PLEASE NOTE: None of these fees apply if you are purchasing the property with cash. Property closing costs are extremely minimal with all cash purchases.

Council Taxes

You pay property taxes to the county in which your property is located. In the Orlando area, for example, it would either be Orange, Osceola, Lake or Polk County. This tax is paid annually on the assessed value of your property (which is usually around 75% of the actual market value of the property. The amount of taxes depends on facilities and schools in that area, but an average amount for property taxes on a $150,000 house would be somewhere around $2,000.

Renting out your property

All rental income received in Florida is subject to US tax. There is a current double taxation treaty between The United States and the UK to prevent double payment of taxes. Unlike most other states, Florida does not impose a local state income tax. Some experts claim little or no tax is paid on rentals as tax deductions are extremely generous and include mortgage interest relief, the cost of two annual “inspection” flights from the UK, plus maintenance, property taxes, depreciation, and other fees. Please consult our tax expert, Paul Rubino, CPA for details...  www.global1040tax.com

 

Selling Costs

Estate agents will charge a percentage of the of the sale price. Typically, you pay what are called Documentary Stamps on the Deed, which is the full amount of the selling price, at the rate of 70 cents per $100. For example, on a $150,000 house, you would pay US $1,050. This will record the transfer of property with the State of Florida ensuring you are no longer the owner and liable for the property.  In Florida, the Seller will also pay for a Title Insurance Policy for the new buyer/owner. This policy provides clear title insurance and protection for the buyer. These fees vary. Please email me for the going rates - Ellen@Century21.com   In Florida, capital gains tax on the sale of your primary home is due only on profits in excess of $250,000 for a single individual ($500.000 for a married couple). The US will tax foreign persons on disposition of US property. See the FIRPTA section below or please consult a tax specialist for details. Please feel free to contact our tax expert, Paul Rubino, CPA at www.global1040tax.com

 

Foreign Taxation on Disposition of US Properties:

Withholding of Tax on Dispositions of United States Real Property Interests

The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A U.S. real property interest includes sales of interests in parcels of real property as well as sales of shares in certain U.S. corporations that are considered U.S. real property holding corporations. Persons purchasing U.S. real property interests (transferee) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 10 percent of the amount realized (special rules for foreign corporations) Withholding is intended to ensure U.S. taxation of gains realized on disposition of such interests. The transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.

The amount that must be withheld from the disposition of a U.S. real property interest can be adjusted pursuant to a withholding certificate issued by the IRS.

  • A disposition includes the sale/purchase of any U.S. real property interests.
  • Generally speaking, in reference to the sale/purchase of real estate, the person selling the real estate, the seller, is commonly referred to as the transferor.
  • The purchaser/buyer of the real estate is commonly referred to as the transferee.
  • Generally speaking the amount realized is the purchase/sales price of the real estate.
  • Generally speaking the buyer must find out if the seller is a foreign person. If so, the purchaser/buyer must withhold income taxes.
  • The purchaser/buyer may be held liable for the tax that should have been withheld on the purchase.

One of the most common exceptions to FIRPTA withholding is that the transferee (purchaser/buyer) is not required to withhold tax in a situation in which the purchaser/buyer purchases real estate for use as his home and the purchase price is not more than $300,000.

Additional information may be obtained from our tax expert, Paul Rubino, CPA at www.global1040tax.com