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.

In staunchly conservative Collier County, Florida, tax increases are rarely popular. But when the increases are to the bed tax (a.k.a. tourist development tax) and the sales tax, the impact is a little easier to digest. This is mainly because, as compared to tax increases on real property, the bed tax and sales tax do not have uniform impact on owners of real property.

The Board of County Commissioners, in its present form since Commissioners McDaniel and Solis were seated in late 2016, took bold steps in 2017:

  • to diversify the county’s economy through adoption of a bed tax increase;
  • to address overdue improvements to infrastructure via a 2018 voter referendum that would increase the County’s sales tax by 1%; and,
  • to solicit input on potential creation of a stormwater utility.

Bed Tax Increase

Continue Reading Tax Increases: Collier County Takes Bold Steps for 2018

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.

tax.jpgWith Florida’s 2017 Regular Session officially adjourned on May 8, 2017, only 203 bills (of the total 1,606 general bills filed) survived both chambers of the Legislature.

From the handful of legislation that ultimately passed this year, Joint Resolution CS/HJR 21 was enacted. This resolution proposes an amendment to the State’s Constitution that would limit a local government’s authority to assess non-homestead real property for purposes of ad valorem taxation.

Background

Under Florida’s Constitution, ad valorem taxation is expressly reserved to local governments. The state is prohibited from levying ad valorem taxes on real and tangible personal property.

When preparing an annual assessment, the State Constitution also generally requires that all property be assessed at just value (i.e., market value) on January 1st of each year. Thereafter, such assessments are used to calculate property taxes to fund counties, municipalities, district school boards and certain special districts.

Florida’s Existing Limitations on Assessments for Non-Homestead Property

Continue Reading Florida Voters to Consider Permanent Cap on Annual Non-Homestead Property Tax Assessments

matthewsimmons1As Co-Chair of the Lee County Bar Association’s Land Use and Governmental Law Section, I recently had the privilege of sitting down with Matt Simmons, State-Certified Residential Real Estate Appraiser and partner at Maxwell Hendry & Simmons, after he spoke at our group’s July luncheon. Matt shared so much valuable information with us (no pun intended) that I hoped to capture some of that knowledge to share here. Given the importance of the real estate market to our community, it is nearly impossible to distill the wealth of data Matt and his firm have in a short blog. But, it’s always fun to try!

Q: You have great data to share, and you mentioned that often the data can be skewed if viewed in isolation. What do you see as the most misunderstood information reflecting the SWFL market?

Continue Reading Insight into the SWFL Real Estate Market: Q&A with Matt Simmons

This year, on two separate election days, Florida voters had — and will have — the opportunity to vote on two different constitutional amendments.

(Editor’s Note: At press time, the August 30th primary had yet to occur. However, it has since been reported that Amendment 4 was approved by nearly 73 percent of Florida voters at the primary, thus the measure will take effect on January 1, 2018, and expire on December 31, 2037.)

Amendment 4: Florida Tax Exemptions for Renewable Energy Measure

By way of background, the Florida Constitution currently provides for local government ad valorem taxes on real property and tangible personal property, assessment of property for tax purposes, and exemptions to these taxes. Section 4(i) in Article VII of the Florida Constitution also provides that the legislature may prohibit the consideration of the installation of a renewable energy source device in the determination of the assessed value of real property used for residential purposes.

Continue Reading Solar Energy is Hot on Florida Ballots in 2016

11745456_10204830522498328_4583304138522897113_n(1)In City of Fort Pierce v. Treasure Coast Marina, LC, No. 4D14-3064, 2016 WL 3087680 (Fla. 4th DCA May 31, 2016), the Fourth District Court of Appeal addressed whether a marina that was owned and operated by a municipality should qualify as a traditionally exempt “municipal or public purpose” for ad valorem tax exemption purposes under Article VII, Section 3(a) of the Florida Constitution.

A Brief Look at Florida’s Constitutional Ad Valorem Tax Exemption for “Municipal or Public Purposes”

According to Article VII, Section 3(a) of Florida’s Constitution, “[a]ll property owned by a municipality and used exclusively by it for municipal or public purposes shall be exempt from taxation.”

Continue Reading Privately-Owned Marinas Are Not Exempt from Ad Valorem Taxation in Florida, but what About City-Owned Marinas?

tax.jpgAs a property owner in Florida, you have a right to appeal the property appraiser’s assessment of your property’s value, a denial of your application for an exemption (homestead, veterans, or senior citizen), a portability denial, and a denial of your application for property classification such as agricultural or historic. For a few “Helpful Tips for Reviewing your TRIM Notice”, please click here.

Typically, once a taxpayer decides to bring a challenge based on any of the above-mentioned grounds, a request for an informal conference will be made with the County’s property appraiser to discuss the value or to discuss the denial of an application for a property exemption or classification. Following an informal conference, in the event that the issues cannot be favorably settled, taxpayers (or their representatives) can file a petition with the local Value Adjustment Board (VAB). Alternatively, Florida law allows taxpayers to bring such challenges in circuit court.

Appeals to the Value Adjustment Board (VAB)

Continue Reading Know Your Rights as a Property Owner in Florida Before Opening your TRIM Notice for 2016

tax burdenThose owning real property in Lee County have likely received their annual TRIM (Truth in Millage) Notice. From my experience of practicing in this area of the law, I have found that some questions continue to repeat every year once taxpayers receive their TRIM Notices.

To help taxpayers understand what the TRIM means for them, I thought it would be helpful to go through a few quick tips for what to look for when reviewing this important document: Continue Reading Helpful Tips for Reviewing your TRIM Notice

SanibelLiving and practicing on Sanibel, I have many clients who come to us when they purchase a condominium or home for investment income. One of the questions that often arises is whether they should hold their investment real estate in a separate legal entity for tax and liability purposes.

Our recommendation for most clients is that they should consider the formation of a Florida limited liability company (LLC). A Florida limited liability company offers the liability protections most often associated with a corporation, while have the tax attributes of holding the property in your individual name.

In an LLC, each owner holds a “membership” interest, often described as “units” or “percentages” that define their individual ownership, much in the way that a corporation is owned by shares of stock. The LLC should have an Operating Agreement setting forth the terms and conditions (think of them as “rules”) of ownership. There are many options in deciding what should go into an Operating Agreement. You should discuss these options with your attorney when creating the LLC.

Protections of an LLC

Continue Reading Should I Form an LLC for My Beach Rental?