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Paul Shuman devotes his practice to assist clients with business transactions and tax matters. More specifically, he analyzes the impact of federal and state taxation on proposed transactions (whether it is a corporate merger, sale of a family-owned business or a joint venture) to find practical solutions that minimize tax exposure. Paul’s clients include domestic and international companies, small businesses, and individuals.

Paul has a diverse background. He left his hometown of Amarillo, Texas, to live in Europe for several years. Upon returning to the United States, Paul founded a successful business renovating the interiors of large private and corporate yachts.

Paul received his undergraduate degree from the University of Texas at Austin.  He then found his passion for tax law while attending Georgia State University College of Law on a full academic scholarship. After taking every tax class offered at Georgia State, Paul attended the University of Florida Graduate Program, where he received his Masters of Law (L.L.M.) in Taxation.

On December 20th, 2017, President Trump stood outside the White House and announced that Congress had passed the Tax Cuts and Jobs Act (“Tax Act”), the most thorough overhaul of the federal tax code since the Reagan administration. Like American taxpayers everywhere, most Floridians are wondering:

How will this tax legislation affect me?”

Because the most significant investment for most Americans is their home, this blog post explores how the legislation will affect home-owning taxpayers.

Capital Gains Tax on Primary Residences

One of the main concerns of home-owning taxpayers regarding the tax overhaul was whether Congress would alter the current tax treatment of capital gains taxes on the sale of primary residences. In many instances, the IRS treats the gain from real estate transactions, such as the sale of a vacation home, as taxable capital gains income. However, § 121 of the Internal Revenue Code provides an exception that exempts from taxable income up to $250,000 in capital gains for homeowners selling their primary residence. Much to the relief of homeowners and the homebuilders’ lobby, Congress did not change this provision.

Mortgage Interest and Property Tax Deduction

While Congress did not change the capital gains treatment of the sale of primary residences, Congress did make two notable changes affecting popular deductions for property taxes and mortgage interest. First, with respect to the mortgage interest deduction, Congress amended § 163(h)(3) of the Internal Revenue Code to reduce the amount of borrowed money used to purchase a home (mortgage debt or “acquisition indebtedness”) on which homeowners can deduct the interest from income.

Under the previous tax rules, homeowners could deduct from income the interest paid on the first $1,000,000 in acquisition indebtedness ($500,000 if married filing separately). The Tax Act lowered to $750,000 the amount of acquisition indebtedness on which interest deductions are allowed ($375,000 if married filing separately). It is important to note that mortgage debt incurred before December 15, 2017, is grandfathered in under the older $1,000,000 limitation. Also grandfathered in under the $1,000,000 limitation are taxpayers who had signed contracts on or before December 15, 2017, to close on the purchase of a primary residence before January 1, 2018, so long as the purchase is actually closed before April 1, 2018.

Second, Congress placed a cap on the amount of state and local income taxes and property taxes that taxpayers can deduct on their federal tax returns. Under the previous tax rules, taxpayers could deduct from their income unlimited amounts of state and local income taxes, state and local real property taxes, and state and local personal property taxes paid in the taxable year. The Tax Act amends § 164 of the Internal Revenue Code by reducing the amount of state and local taxes taxpayers can deduct from income to the first $10,000 in state and local income and property taxes ($5,000 if married filing separately). This change represents a significant adjustment and most significantly affects taxpayers in high income-tax states. Fortunately, we have no state income taxes in Florida. However, the $10,000 limitation on deduction of property taxes will still affect Florida homeowners paying property taxes above that amount.

Takeaway

Beginning in 2018, many taxpayers, but not all, will start to see federal income tax relief and lower federal income tax bills. However, while the Tax Act changes provisions that benefit some taxpayers, some changes in the Tax Act will be detrimental to other taxpayers. To know more about how the Tax Act will affect you, you should consult with a tax professional. If you have any questions regarding the Tax Cuts and Jobs Act and its effects, please contact Caleb Hinton at caleb.hinton@henlaw.com or Paul Shuman at paul.shuman@henlaw.com.

The Florida Legislature recently delivered a small win for the business community with Florida House Bill 7109. Effective January 1, 2018, Florida Statute 212.031(1)(c) is amended by lowering the sales tax levied against commercial tenants from 6% to 5.8%. A more significant decrease would have been better, but commercial tenants will take what they can get, we suspect. The tax – known as the Business Rent Tax or “the BRT” – affects commercial tenants including retail, office space, and industrial tenants.

What is the BRT?

The Florida Legislature enacted the BRT in 1969, declaring that the business of renting, leasing, letting or granting a license for the use of commercial real property is a “taxable privilege.” In part because Florida has no personal income tax, the state government relies on sales taxes, including the BRT, as a significant source of revenue. Many local governments also impose a local option sales tax on top of the state BRT.

Florida is the only state to levy a statewide tax against commercial tenants, and thereby creates a competitive disadvantage for Florida businesses that lease rather than own their commercial space.

House Bill 7109

Florida’s BRT is unique from a national perspective in two respects: not only is it the only standard, statewide sales tax on commercial real estate rents, but unlike other corporate taxes, it is not pegged to profitability. As a result, the BRT significantly raises occupancy costs on all commercial tenants, regardless of their financial condition. New and/or struggling businesses in Florida may have the greatest difficulty with the burden this tax creates, and these businesses are likely to benefit the most from the tax relief in House Bill 7109.

Takeaway

Many voices within Florida’s business community have pushed for years for steep cuts to the BRT and, beginning in 2018, start to see their lobbying efforts bear fruit. Considering the significant impact the tax has on occupancy costs, the BRT should continue to be the subject of considerable debate in Tallahassee. As with all tax matters, please consult with your tax professional. If you have answer questions regarding the Business Rent Tax reduction and its effects, please contact Caleb Hinton at caleb.hinton@henlaw.com or Paul Shuman at paul.shuman@henlaw.com.