TAX INFORMATION WHEN REPRESENTING SELLER IN FLORIDA

When you sell an asset such as real estate, stocks, or other investments in Florida, you may be subject to capital gains tax on the profits you earned from the sale. Capital gains tax is a tax on the difference between the sale price of an asset and its cost basis, which is the original purchase price plus any expenses related to the purchase and sale of the asset, such as closing costs or real estate agent fees.

In Florida, capital gains tax is imposed at the federal level and may also be subject to state tax, depending on your individual circumstances. The federal capital gains tax rate varies depending on your income level and the length of time you held the asset before selling it. Short-term capital gains, which are profits earned from assets held for one year or less, are typically taxed at higher rates than long-term capital gains, which are profits earned from assets held for more than one year.

Additionally, Florida does not impose a state income tax, which means that residents of the state are not subject to state capital gains tax. However, non-residents of Florida may be subject to state capital gains tax if the asset they sold was located in Florida or if they earned income from Florida sources.

It's important to note that tax laws can be complex, and the specific tax implications of selling an asset in Florida will depend on your individual circumstances. You may want to consult with a tax professional or accountant to ensure that you are meeting all tax obligations related to the sale of your asset.

If you are interested in buying an asset from a potential seller in Florida and want to understand the tax implications of the sale, here are some questions you could ask:

What is the cost basis of the asset you are selling?

This will help you determine the amount of profit the seller made from the sale and the potential capital gains tax they may owe.

How long have you owned the asset?

This will help you determine if the seller is subject to short-term or long-term capital gains tax rates.

Are there any expenses related to the sale that will affect the cost basis?

This could include closing costs, real estate agent fees, or other expenses related to the purchase and sale of the asset.

Have you consulted with a tax professional about the potential tax implications of the sale?

This will help you understand if the seller is aware of their tax obligations and has taken steps to ensure they are complying with tax laws.

Are you a resident of Florida? 

If the seller is a non-resident, they may be subject to state capital gains tax if the asset was located in Florida or if they earned income from Florida sources.

Have you paid off any outstanding tax obligations related to the asset?

This will help you understand if the seller has any outstanding tax liens or other obligations that could affect the sale.

Are there any other tax implications related to the sale that I should be aware of?

This will help you understand if there are any other taxes or fees that may be imposed on the sale, such as transfer taxes or property taxes.

It's important to note that these questions are not exhaustive, and the specific questions you ask will depend on the asset being sold and the seller's circumstances. It may be helpful to consult with a tax professional or accountant to ensure that you are asking the right questions and fully understanding the tax implications of the sale.

Several strategies can be used to potentially reduce or avoid capital gains taxes when selling a rental or additional property in Florida. Here are a few options to consider:

Utilize a 1031 exchange:

A 1031 exchange allows you to defer paying capital gains taxes on the sale of a rental or additional property by reinvesting the proceeds into a similar property. This can be a powerful way to avoid paying taxes on the sale of your property altogether. To qualify for a 1031 exchange, you must follow certain rules and timelines, so it's important to work with a qualified intermediary or tax professional to ensure you comply with all regulations.

Invest in Opportunity Zones:

Opportunity Zones are designated areas in economically distressed communities where investors can receive tax benefits for investing in real estate or businesses. By investing in an Opportunity Zone, you may be able to defer or reduce your capital gains tax liability.

Sell the property after you've lived in it: 

If the rental or additional property was previously your primary residence, you may be able to take advantage of the capital gains exclusion. This allows you to exclude up to $250,000 in capital gains ($500,000 for married couples) from the sale of your primary residence, as long as you meet certain requirements.

Take advantage of capital losses: 

If you have other investments that have lost value, you may be able to offset your capital gains taxes by selling those investments and using the losses to reduce your tax liability.

Donate the property:

If you are interested in supporting a charitable cause, you may be able to donate the rental or additional property to a qualified charity and receive a tax deduction for the fair market value of the property. This can help you avoid paying capital gains taxes on the sale of the property.

It's important to note that each of these strategies has specific rules and requirements, and the effectiveness of each strategy will depend on your individual circumstances. It may be helpful to work with a tax professional or financial advisor to determine the best approach for your specific situation.

Capital Gains

To calculate the capital gains tax on the sale of the rental property in Florida, you will need to determine the cost basis and the capital gain. The cost basis is the original purchase price plus any expenses related to the purchase and sale of the property, such as closing costs, real estate agent fees, and improvements made to the property. The capital gain is the difference between the sale price and the cost basis.

Assuming the cost basis of the property is $649,000 and the sale price is $900,000, the capital gain would be $251,000. As a married couple filing jointly in the US, your capital gains tax rate would depend on your income level and the length of time you held the property.

If you held the property for more than one year, the capital gain would be considered a long-term capital gain. In 2023, the long-term capital gains tax rates for a married couple filing jointly are as follows:

0% for taxable income up to $80,000

15% for taxable income between $80,001 and $501,600

20% for taxable income over $501,600

Assuming you fall within the 15% capital gains tax bracket, you would owe $37,650 in capital gains taxes at closing (15% of $251,000).

However, this is just an estimate, and there may be additional taxes, fees, or deductions that apply to your specific situation. It's important to consult with a tax professional or accountant for personalized advice.

Financials

How much home can you afford?

Lenders recommend that you spend no more than 3-5 times your annual income on a new home. You can find many mortgage calculators online, which provide a great starting point. When calculating, don't forget to include extra expenses like attorney fees, home inspection and appraisal costs and money for any home improvements.

Do you need a down-payment?

While it's ideal if you can put a 20% down-payment on your new home, it certainly isn't necessary. There are many ways to put down much less and with certain types of loans you may need as little as 3.5%.

Credit Check

It is important to have a credit check done as this will be a factor in determining your mortgage approval and interest rates. While sometimes a score in the 500's can get you a loan, ideally you want to aim for 620 or above. The higher the score the lower the interest rate.

Pre-qualified & Pre-Approved

Many times these terms can be used interchangebly in different areas. You will want to ask your real estate agent which is more credible in your market and then apply.

Either way, being pre-qualified or pre-approved shows the seller that you're serious and that you most likely have the funds to purchase the home should you choose to place an offer. Pre-approval can also help you budget as you will know exactly what you can afford.

This pre-approval does not guarantee a loan will be offered so you still want to be careful with your spending during this time. Don't make any large purchases, change jobs or apply for new credit cards during this time.

Tour Homes

Home searching tips......

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Make a list of all the things you need and want in a new home. Think about how many bedrooms and bathrooms you need.

Do you want a big kitchen or is a fenced-in yard more important to you?

We will start touring homes and weigh all the positive and negative aspects of each one.

Take photos with your phone while visiting each house. Organize the photos at home with the address of the property so you can remember details later.

Focus on the things you can't change like the neighborhood, lot or size of bedrooms.

Focus on the things you can't change like the neighborhood, lot or size of bedrooms.

Test things as you walk through the home. Open and close windows, turn faucets on and flush toilets to make sure everything is in working order.

Make an Offer and Negotiate

Once you've found the home you want, the next step is to make an offer. We will look at comparable properties in the area and decide on a strong first offer. Many owners price a little high expecting to negotiate so we will take that into consideration as well.

Negotiate Offer

Many times after the initial offer is presented the owner will come back with a counter-offer. As a buyer, don't be afraid to bargain for what you want. Whether that be cost, a new roof or the whole house painted. You don't know what they're willing to do unless you ask.

Inspection

It's always a good idea to add a contingency clause into your offer stating that you have a certain amount of time to have the property inspected. This gives you the right to back out of the agreement if you and the seller can't agree on repairs.

Plan to attend the inspection and be prepared to ask any questions you have.

You will receive a report of findings, but it's sometimes easier to see the issue and hear the information directly from the inspector.

After the inspection is complete, decide if there are any pressing issues you want to negotiate with the seller.

Be careful to not be too picky, but also not let major concerns go unaddressed.

Appraisal

Your lender will require an appraisal of the home before finalizing the loan. The home appraiser will take into account the neighborhood, housing market, age and condition of the home, etc.

A property title search will ensure that the sellers are truly the owners of the property and any leins or juedgments are disclosed.

Loan Approval

The loan is only fully complete after the lender approves the loan. You will receive a final approval letter after they review your income, credit report and employment status once more. Home owners insurance is also required before the mortage company will finalize the loan.

Closing & Moving

Schedule your move

You will want to get movers scheduled as soon as possible. Make sure to avoid scheduling the move and closing on the same day if possible. If you will be doing renovations, start getting quotes from contractors.

Make sure you set up the transfer of utilities for closing day.

Closing

Closing is the final step for you to become the legal owner of your home. You will take a final walk-through just before closing to assure that negotiated work has been completed and everything is in working order.

The closing process itself requires a lot of paperwork and patience. Be prepared with your government issued photo ID, cashier's check and any other documents required by the title company or loan officer.

Don't forget to re-key all the locks and change the garage door opener code when the property is officially yours.

Congratulations on your new home!