Fl. Real Estate Unit 18
An apartment complex is classified by the IRS as residential rental property.
Residential rental property can be single-family homes, condominiums, apartments, townhomes, or other types of residential structures.
A development company purchased 1,000 acres of land from a foreign seller for $2,850,000. Federal law requires the buyer to withhold from the seller and pay to the IRS approximately
The answer is $427,500. The IRS requires that buyers withhold 15% of the gross sale price. The buyer must report the purchase and pay the IRS the amount withheld.
A homesteaded single-family residence has an assessed value of $92,800. The owner is a 25% service-disabled veteran who is 75 years of age. What is the total homestead tax exemption?
The answer is $55,000. The assessed value exceeds $75,000. The solution is $50,000 homestead exemption + $5,000 disability = $55,000 total homestead tax exemption.
A homeowner originally purchased a new home for $325,000. During the period of ownership, the homeowners spent $25,000 in capital improvements. The homeowners sold the home 15 years later for $449,900. The homeowners paid a brokerage fee of 5% of the sale price and paid out-of-pocket closing costs totaling $3,250. What is the homeowners' capital gain from the sale
The answer is $74,155. Solution: $449,900 sale price × .05 = $22,495 broker commission. $449,900 - $22,495 - $3,250 closing costs = $424,155 amount realized from sale. $325,000 purchase price + $25,000 capital improvements = $350,000 adjusted basis. $424,155 - $350,000 = $74,155 capital gain.
Which property is exempt from property taxes?
The answer is church. Exempt properties include property belonging to churches and nonprofit organizations. Immune properties are city, county, state, and federal government buildings.
The Value Adjustment Board is composed of
The answer is one school board member, two county commissioners, and two citizen members. The board is made up of five members.
Which statement is FALSE regarding property taxes?
The answer is property taxes for the previous year are due on November 1. Property taxes are due November 1 for the current year. Property taxes are paid in arrears, meaning that although they are assessed on January 1, the bill is not due until November 1 of the same year.
Which item is NOT a deductible expense for an income-producing property?
The answer is reserve for replacement. Reserve for replacement is not a cash expense and therefore is not deductible.
If a married couple who files jointly realizes a profit from the sale of their home that exceeds $500,000, what is the result?
The answer is the excess gain will be taxed at the current applicable capital gains rate. Gain is not taxed up to $500,000.
Depreciation Components
The depreciable basis of the property is the amount that may be depreciated. For real property, it is generally the initial cost of the asset plus acquisition costs minus the value of the land. Acquisition costs generally include such items as the buyer's attorney's fees, appraisal fees, survey fees, and title insurance costs. Because land is not depreciable, this basis (total cost) must be allocated between the improvements (buildings, etc.) and the land, based on the respective values of each
Special assessments are levied according to the value of a property.
The statement is false. Special assessments are one-time taxes levied on properties to help pay for public improvements that benefit the property. Special assessments are not ad valorem taxes; they are not levied according to the value of a property. Usually, special assessments are levied on a front-foot basis for items such as sidewalks and street paving. They are often levied on a per hookup basis for utility and sewer improvements.
When purchasing real estate in the U.S. from a foreign seller, the purchaser is required to withhold up to 15% of the amount realized on the sale.
The statement is true. Persons purchasing real property in the U.S. from foreign sellers are required to withhold up to 15% of the amount realized on the sale.
Mortgage origination fees (points) paid on a refinance mortgage loan are deductible in the year they are paid.
false. Points paid when refinancing a loan must be deducted over the life of the loan.
Property owned by nonprofit organizations is classified as immune property.
false. Property belonging to churches and nonprofit organizations is classified as exempt property.
The maximum rate of interest paid on a tax certificate is based on the prior year's Consumer Price Index.
false. The bidding on tax certificates starts at 18% and goes down; therefore, the maximum rate paid on a tax certificate is 18%.
The first step in the property tax protest procedure is to file an appeal with the Value Adjustment Board.
false. The first step in the property tax protest procedure is to seek an adjustment by contacting the county property appraiser.
The IRS useful asset life of nonresidential income-producing property is 27.5 years for calculating depreciation allowance.
false. The useful life of nonresidential income-producing property is 39 years. The useful life of residential rental property is 27.5 years.
Property taxes are paid in arrears.
true. Property taxes are not due until November 1 and do not become delinquent until April 1 of the following year.
Like-Kind Exchange
Real estate investors can defer paying taxes by exchanging real property. The income tax is deferred, not eliminated. A like-kind exchange enables a taxpayer-investor to realize the benefits of investment and property appreciation immediately while paying taxes later. When the investor sells the new property (acquired in the exchange), the capital gain will be taxed.
Nonpayment of Real Property Taxes
Real estate taxes and non-ad valorem assessments are due each calendar year and are payable November 1. The taxes become delinquent April 1 of the following year. Property taxes constitute a lien superior to all other liens on real property. Special assessments are next in priority. Delinquent Real Estate Taxes When a property owner fails to pay property taxes, the taxing authority must take steps to obtain the tax money needed to help pay for the cost of government. To do this, a property tax certificate is issued for each delinquent property. A list of all delinquent properties is published in a newspaper having general circulation throughout the county. The advertisement is printed weekly, three times prior to the tax certificate sale. This publication gives all delinquent owners notice that tax certificates on their properties will be sold if the taxes are not paid before the date of sale. The published list of properties, including the amount of taxes in arrears, specifies a date, time, and place of the tax certificate sale. The county tax collector may conduct electronic online sales of tax certificates. A property owner who pays the tax late in April or May is charged interest plus advertising cost. Tax Certificate Auction The tax collector is required to conduct a sale of tax certificates to collect the preceding year's unpaid real estate taxes. The sale begins on or before June 1. The delinquent tax amount (certificate's face amount) consists of the real estate tax and non-ad valorem assessment amount, interest for the months of April, May, and June, county tax collector's commission (5%), newspaper advertising charges, and internet tax certificate sale fees. A tax certificate sale is not a sale of real property, nor does a tax certificate give the certificate holder a direct means to acquire a property. At the auction, any qualified person is entitled to bid for the tax certificate on any property. Instead of bidding in dollars, investors bid interest rates at the auction, starting at 18% and going down. The bidder who is willing to accept the lowest interest rate is issued the tax certificate. Once the certificate is sold, the bidder must pay the face amount of the certificate to the county (taxes, interest, and advertising cost). Redemption of a Tax Certificate The county tax collector issues a check to the certificate holder for the face amount of the certificate and the interest earnings when the property taxes are paid. For a certificate to be redeemed by the owner of the property, the tax collector must collect the face amount of the certificate plus all accrued interest. If the property owner does not pay the outstanding taxes and accrued interest within two years from the date the tax certificate was sold, the certificate holder can apply for a tax deed. The statute of limitation on a tax certificate is seven years from the date of issuance. If a tax deed has not been applied for within seven years and no other administrative or legal proceeding exists, the tax certificate is null and void by operation of law. Tax Deed Process The holder of the tax certificate may file a tax deed applicationanytime after two years has lapsed from the issuance of the tax certificate but before the expiration of seven years from the date of issuance. The certificate holder must pay the county tax collector all amounts required for redemption or purchase of all other outstanding tax certificates, any omitted taxes, current and delinquent taxes, plus interest and fees. The tax deed applicant is notified of the additional funds needed for advertising and other costs. Anyone can bid at the foreclosure sale and the property will be sold to the highest bidder. If the property is purchased by someone other than the certificate holder, the tax certificate holder will be reimbursed all the sums paid plus accrued interest up to the date of sale. If there are no bidders, the holder of the certificate is issued a tax deed. Once the property is transferred by tax deed, all other liens against the property—including mortgages—are wiped out, with the exception of any government liens.
Ad valorem means according to cost.
Ad valorem means according to cost.
Additional Homestead Tax Exemptions for Veterans
At least 10% disabled by misfortune or during wartime service (applies to surviving spouse who had been married to the veteran for at least five years on the date of death) $5,000 Service-connected, totally disabled (applies also to surviving spouse) Homestead property 100% tax exempt Surviving spouse of veteran who died while on active duty Homestead property 100% tax exempt Example: What is the total homestead exemption for a widower with an assessed value of more than $75,000 on a qualifying homesteaded property? $50,000 homestead exemption + $500 surviving spouse additional exemption = $50,500 Example: What is the total homestead exemption for a blind surviving spouse with an assessed value of greater than $75,000 on a qualifying homesteaded property? $50,000 homestead exemption + $500 blind exemption + $500 surviving spouse exemption = $51,000 The taxable value for calculating school taxes uses only the base $25,000 homestead exemption because only the base $25,000 homestead exemption is exempt from school board taxes. Example: The assessed value of a homesteaded property is $350,000. Calculate the taxable value for school property taxes and nonschool property taxes. $350,000 assessed value - $25,000 base homestead exemption = $325,000 taxable value for school taxes only Use the total homestead exemption to calculate the taxable value for city and county taxes: $350,000 assessed value - $50,000 homestead exemption = $300,000 taxable value for city and county taxes (non-school taxes)
Capital Gains and Capital Losses
Capital gain income results from the sale of capital assets. Capital gains (and losses) are either short term (the asset is held for less than 12 months) or long term (the asset is held for more than 12 months). Capital gains are taxed at the applicable capital gains rate. A capital gain from the sale of real estate investment property can be used to offset a capital loss from the sale of other investment property. Furthermore, if an investor's capital loss exceeds capital gains, the investor may deduct up to $3,000 in losses in a given year. Assume, for example, an investor has two investment properties. One earns a capital gain of $10,000, and the other has a capital loss of $15,000. The investor can offset the $10,000 gain with $10,000 of the loss. This leaves a net $5,000 loss of which the investor can deduct $3,000. The investor must carry forward the remaining $2,000 loss to the next year. A loss from the sale of your personal residence is not deductible.
Assessed Value of Property
County Assessor's determination of a percentage of the true and fair market value of the property.
Straight-Line Method
Depreciation is calculated using the straight-line method. An equal amount of depreciation is taken annually over the useful life of the asset. The Internal Revenue Service (IRS) has currently established useful asset life as 27.5 years for residential rental property and 39 years for nonresidential income-producing property Residential rental property can be single-family homes, condominiums, apartments, townhomes, or other types of residential structures. If a property owner purchases a duplex and lives in one of the units and rents the other to tenants, the IRS classifies the unit the property owner lives in as the owner's primary residence and the other unit is classified as residential rental property. Nonresidential income-producing property includes industrial and commercial investment property, such as offices, restaurants, retail stores, warehouses, and so forth. Formula: Straight-Line Method total cost to acquire property - value of the land = depreciable basis depreciable basis ÷ useful life (27.5 or 39 years) = annual IRS depreciation deduction Example: In 2019, a duplex classified as a residential real estate investment property was purchased for $250,000, with a land value of $50,000. The depreciable basis is $200,000 ($250,000 sale price less the land value). What is the amount of the yearly depreciation deduction? $200,000 depreciable basis ÷ 27.5 years = $7,273 annual depreciation deduction Example: In 2019, a nonresidential real estate investment property was purchased for $2,350,000, with a land value of $250,000. What is the amount of the yearly depreciation deduction? $2,350,000 - $250,000 land value = $2,100,000 depreciable basis $2,100,000 ÷ 39 years = $53,846 annual depreciation deduction (rounded to nearest dollar)
Federal Income Taxes Sale of Real Property
Federal income tax laws classify real property as a capital asset. Capital gain income is profit from the sale of a principal residence, an investment property, a property used in a trade or business, or an income-producing property, and it must be reported for tax purposes. The taxable gain on real estate is determined by two factors: Adjusted basis is the original purchase price, plus expenses associated with the purchase and any capital improvements. Amount realized from the sale is the sale price less the expenses associated with the sale. Example: A homeowner originally purchased a new home for $190,000. During the period of ownership, the homeowner spent $15,000 in capital improvements. The homeowner sold the home 10 years later for $265,000. The homeowners paid a brokerage fee of $13,250 and closing costs of $1,155. What is the capital gain from the sale? Step 1: Calculate the adjusted basis. $190,000 original purchase price + $15,000 capital improvements = $205,000 adjusted basis Step 2: Calculate the amount realized from the sale. $265,000 sale price - $13,250 commission - $1,155 closing costs = $250,595 amount realized The capital gain (or loss) is the amount realized from the sale less the adjusted basis. $250,595 amount realized from sale - $205,000 adjusted basis = $45,595 capital gain
Investment Property
Federal income tax laws encourage real estate investment. Buyers and sellers should always seek competent tax advice to ensure the most favorable tax treatment in a real estate transaction. Advance planning is necessary if an investor's after-tax return on investment is to be maximized. Types of Income Recall from Unit 16 the types of income: Effective gross income (EGI) Net operating income (NOI) Formula: Effective Gross Income (EGI) potential gross income (PGI) - vacancy and collection losses + other income = effective gross income (EGI) Formula: Net Operating Income (NOI) effective gross income (EGI) - operating expenses = net operating income (NOI)
Florida's Green Belt Law
Florida law authorizes county property appraisers to assess agricultural land by a more favorable method than that used for other properties. If a taxpayer's land is so classified for assessment purposes, the county property appraiser must base the property tax assessment solely on the basis of the land's current character and use. The highest and best use of such land (such as commercial development) is not a factor in arriving at just value for agricultural purposes. Florida's Green Belt Law was designed to protect farmers from having taxes increased just because the land might be in the path of urban growth and therefore well suited for development. An agricultural land classification results in a lower property assessment. Without such protection, a farmer's taxes could be raised to the point where it would no longer be economically feasible to continue the agricultural use. Because of lower taxes on agricultural land, speculators often have been attracted to such properties when they are located in the path of urban growth. In many instances, the law, which was intended to protect the farmer, has been used as a tax protection by speculators. To stop this practice, the Florida Green Belt Law was changed to require that all county property appraisers annually classify all lands within the county. Property owners desiring that their land be classified differently must request and rejustify such classification before March 1 each year. If the request is denied, these property owners may appeal the denial through the regular protest procedure used by other property owners.
Homestead Tax Exemption
Homeowners are entitled to a $25,000 homestead exemption from the assessed value of the home for city, county, and school board taxes. Homeowners are entitled to an additional $25,000 exemption from city and county taxes (but not school board taxes) if the property's assessed value is greater than $75,00 Tax Exemption Example: A homesteaded condominium unit has an assessed value of $49,000. What is the amount of the homestead exemption? The assessed value is less than $75,000. Therefore, the total applicable homestead exemption is $25,000. Example: A homesteaded single-family residence has an assessed value of $350,000. What is the amount of the homestead exemption for this property? This homesteaded property qualifies for the entire $50,000 homestead exemption because its assessed value exceeds $75,000: $25,000 base homestead exemption from city, county and school taxes + $25,000 additional exemption from city and county taxes = $50,000 total homestead exemption
Tax on Gain at Time of Sale
In general, when income property is sold for cash, all gain or loss must be recognized (reported) immediately for income tax purposes. The total realized gain is the difference between the net sale price (selling price less selling expenses) and the depreciated basis of the property. The seller pays tax on the gain from the sale of real estate in the year the gain is collected. Because of the tax consequences of the immediate recognition of gain, the installment sale method or a like-kind exchange may provide beneficial tax results.
Property taxes become a lien on all real estate in Florida on
January 1 each year. This lien is legally superior to any other lien, regardless of date. Taxes are payable to the county tax collector on or after November 1 each year. Property owners may pay property taxes in four installments or in a single payment. A discount system permits property owners to realize a discount through prompt payment of taxes. All payments made on or after March 1 must be for the full amount of taxes levied. Property taxes for the previous year become delinquent on April 1.
City and County Property Taxes Determining Just Value
Property taxes are levied against land and all improvements to the land. The assessed values of the land and improvements are arrived at separately and then combined to reflect a single assessed value. The state supreme court has interpreted Florida statutes as requiring that all real property be assessed at just value. Just value is the fair and reasonable value based on objective valuation methods. Just value has been interpreted by the Florida courts to represent market value. County property appraisers take into consideration property characteristics such as location, size, and condition of the property. The county property appraiser also considers the highest and best use of the property and, if income producing, the income generated from the property. Property appraisers apply three approaches to value: the sales comparison, cost-depreciation, and income approaches (see Unit 16). If the property is sold during the year, the sale price becomes a factor for consideration in assessing the value of the property, but it is not the controlling factor. Representatives of the property appraiser's office typically go into the community to assess property, collecting data using specific forms and recording procedures. The information obtained from field trips is then processed through a computer, using appropriate valuation formulas to render an objective estimate of assessed value.
Disposition of Real Property From Foreign Sellers
Real estate licensees need to be aware of federal regulations regarding the purchase of real property in the United States from foreign sellers. The sale of real property by a foreign person is subject to the Foreign Investment in Real Property Tax Act (FIRPTA) income tax withholding. FIRPTA authorizes the United States to tax foreign persons on dispositions of real property. Persons purchasing real property in the United States from foreign sellers are required to withhold up to 15% of the amount realized on the sale. Additional regulations regarding the FIRPTA withholding requirements exist. All licensees should encourage their buyers and sellers to consult the IRS or a tax specialist regarding the application of this rule. It is always wise to retain professional counsel regarding tax situations.
Specific Superior Liens
Special assessment liens are not ad valorem tax liens. Ad valorem taxes are liens levied on property value to support the general functions of government, whereas special assessment tax liens are levied on property to pay the cost of a specific local improvement. Special assessment liens are a type of specific lien because the lien attaches to a specific property and not to all the assets of the property owner. Special assessment liens take priority over all other liens, except ad valorem tax liens. Recall that liens that take priority over other liens regardless of the recording date are called superior liens
Street Paving Assessment
Street paving assessments are calculated on a front foot basis. Lot dimensions are written with the front footage first and then the depth of the lot. For example, the "front feet" would be 110 for a lot that measures 110' by 300'. The local government will typically bear a portion of the cost of the improvements, for example, 40% of the total cost, leaving the remaining 60% to be paid by the property owners. When calculating a street paving assessment, it is important to remember that property owners are only charged to the middle of the street (or one-half of the total property owners' share). This is because the property owner across the street will also be charged a special assessment. The property owners across from one another split (each pays one-half) the cost of the assessment. Example: The city is paving the streets in a neighborhood. The city will assume 30% of the expense. The city has approved a bid to pave the streets at a cost of $24 per linear foot. How much is the special assessment for a lot that measures 100 feet by 125 feet? 100 front feet × $24 per linear foot = $2,400 $2,400 × .70 (property owners' total share of cost is 100% - 30%) = $1,680 $1,680 ÷ 2 (one-half of the street paving cost) = $840
Florida law provides certain additional exemptions from the assessed value of homesteaded property
Surviving spouse who has not remarried $500 Blind person $500 Totally and permanently disabled nonveteran $500 Totally and permanently disabled quadriplegic Homestead property 100% tax exempt Totally and permanently disabled first responder (applies also to surviving spouse) Homestead property 100% tax exempt
Federal Income Taxes Principal Residence
Tax laws are designed to encourage homeownership and give preferred treatment to taxpayers who own their residences. The owner-occupied residence may be a house, a condominium, or a houseboat (note that the definition of residential property in Chapter 475 applies to brokerage relationships and does not apply for income tax purposes). The homeowner has certain income tax advantages. Tax advantages of owning a principal residence are as follows: Mortgage interest is deductible. Interest paid on a mortgage loan on a principal and second home is deductible (certain limitations apply). Property tax is deductible. The annual property taxes paid on principal and second homes are deductible (up to $10,000). IRA withdrawals for first-time homebuyers. First-time homebuyers may make penalty-free (but not tax-free) withdrawals up to $10,000 from their tax-deferred individual retirement funds (IRAs) for a down payment. Different IRS rules apply to withdrawals from Roth IRAs. Exclusion of gain from the sale of a principal residence. Up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale or exchange of a principal residence may be excluded. Additional tax benefits to homeowners are as follows Interest on home equity loans is deductible. The interest paid is deductible if the loan is used for improvements to the home. If the home equity loan is used to pay off personal expenses, such as paying off credit card debt, the interest would not be deductible. Mortgage loan origination fees and points are deductible. Loan origination fees and points paid on a mortgage loan to purchase or construct a principal residence are deductible in the year they are paid. Points paid on a refinance loan must be amortized over the life of the loan. Points charged to finance a second home must be deducted over the life of the loan.
Exclusion of Gain From the Sale of a Principal Residence
The IRS allows homeowners to exclude up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale of a principal residence. Any gain above the exclusion is taxed at the applicable capital gains rate. The exclusion is allowed each time taxpayers sell a principal residence, as long as the homeowners have occupied the property as their residence for at least two years during the five-year period ending on the date of the sale. The taxpayer is not required to reinvest the sale proceeds in a new residence to claim the exclusion. The exclusion of gain is generally allowed only once every two years. However, homeowners who do not meet the two-year requirement because of a change in health, job transfer, or other allowable reasons may be eligible for a prorated exclusion of gain.
Save Our Homes and Portability
The Save Our Homes (SOH) amendment to the Florida Constitution caps how much the assessed value of homesteaded property may increase in a given year. The just value of homesteaded property may be increased by the lesser of: 3% annually (based on the assessed value for the prior year); or the percentage change of the Consumer Price Index (CPI) for the preceding year. The SOH benefit is the difference between the assessed value and the market value of a homesteaded property due to the annual limit on increases in assessed value. Assume a homestead has a just value of $300,000, an accumulated $40,000 in SOH protections (called SOH assessment limitation or SOH benefit), and a homestead exemption of $25,000 plus the additional $25,000 exemption on nonschool taxes. What is the taxable value of this homestead? $300,000 - $40,000 SOH benefit = $260,000 assessed value $260,000 - $25,000 base homestead = $235,000 taxable value for school taxes $260,000 - $50,000 total homestead = $210,000 taxable value for nonschool taxes
The city is petitioned to pave the streets in a neighborhood. The paving cost is $32 per foot, and the city is to pay 25% of the cost. There are homes on both sides of the streets to be paved. If the lot frontage on the street is 105 feet, the special assessment for the street paving for this homeowner is
The answer is $1,260. 105 front feet × $32 per foot = $3,360; $3,360 × .75 (owner's share of cost is 100% - 25%) = $2,520. $2,520 ÷ 2 (one-half of the street paving cost) = $1,260.
An investor purchased an industrial building in January for $524,900. The contract specified that 80% of the purchase price be allocated to the structure, and the remaining purchase price be allocated to the land. What is the annual depreciation deduction? (Round to nearest dollar.)
The answer is $10,767. $524,900 × .80 = $419,920 building. $419,920 ÷ 39 years = $10,767.
Homeowners originally purchased a new home for $225,000. During the period of ownership, the homeowners spent $27,500 in capital improvements. When the homeowners sold the home 15 years later for $359,900, they paid a brokerage fee of 5% of the sale price and paid out-of-pocket closing costs totaling $2,550. What is the homeowners' capital gain from the sale?
The answer is $86,855. $359,900 sale price ×.05 = $17,995 broker commission. $359,900 - $17,995 - $2,550 closing costs = $339,355 amount realized from sale. $225,000 purchase price + $27,500 capital improvements = $252,500 adjusted basis. $339,355 - $252,500 = $86,855 capital gain
The just value of a homesteaded property in Leon County is $425,800. The Consumer Price Index for the previous year was 2%. The property's just value increased the maximum allowed under the Save Our Home Amendment. By what percentage did the just value increase?
The answer is 2%. The just value of homesteaded property may be increased either 3% annually (based on the assessed value for the previous year) or by the percentage change of the Consumer Price Index for the preceding year, whichever is less.
Tax advantages of homeownership do NOT include
The answer is exclusion of gain from the sale of a principal residence up to $500,000 for a single adult. The IRS allows an exclusion of up to $250,000 of gain ($500,000 for married couples filing a joint return) realized on the sale of a principal residence.
If a request for a property tax adjustment is denied, what is the property owner's next step?
The answer is file a petition with the Value Adjustment Board. If the property owner's request for an adjustment is rejected, the owner may file an appeal (petition) with the Value Adjustment Board.
Tax Rates
To calculate the dollar amount of property taxes owed, the taxable value of the property is multiplied by the appropriate tax rate. The tax rate is expressed in mills. A mill is one one-thousandth of a dollar (or one-tenth of a cent). There are 1,000 mills in a dollar. Thus, a tax rate of .010 is expressed as 10 mills. Florida has legislated a "cap" (ceiling) that limits cities, counties, and school boards to a basic real property tax rate of no more than 10 mills each, except for voted levies. One mill is properly written in decimals as .001. When the decimal .010 is used, it means one cent, or 10 mills. To convert the tax rate from a decimal form to mills, simply move the decimal point three places to the right. Add zeros, if necessary. Always use three digits when expressing tax rates to prevent confusion. For example, .009 = 9 mills and .010 = 10 mills. To convert millage to its decimal form, move the decimal point three places to the left of the written or unwritten decimal point. For example, 20 mills = .020 and 25.9 mills = .0259. Formula: Annual Property Taxes Due taxable value × tax rate = annual property taxes due Example: Using the tax rate of .010 for a home assessed at $180,000 that has qualified for homestead tax exemption, the calculation of the county property taxes (nonschool taxes) is as follows: $180,000 assessed value - $50,000 homestead exemption = $130,000 taxable value × .010 tax rate = $1,300 property taxes due Example: A homesteaded single-family residence has an assessed value of $350,000. The millage rate for the school district is 6 mills, city 7.1 mills, and county 8.2 mills. How much is owed for school district taxes? How much is owed for city and county taxes? What is the total property tax bill for this property? Step 1: Begin by calculating school taxes. Taxable value for calculating school district taxes applies to the base $25,000 homestead exemption. To multiply by 6 mills, convert to a decimal: 6 mills = .006. $350,000 assessed value - $25,000 base homestead exemption = $325,000 taxable value for school taxes only $325,000 taxable value × .006 = $1,950 school district taxes Step 2: Calculate nonschool taxes. Taxable value for calculating city and county taxes applies to the entire $50,000 homestead exemption (the assessed value of this property exceeds $75,000). $350,000 assessed value - $50,000 homestead exemption = $300,000 taxable value for city and county taxes 7.1 mills city + 8.2 mills county = 15.3 mills = .0153 (decimal form) $300,000 taxable value × .0153 = $4,590 city and county taxes Step 3: Determine total taxes due. Add the property taxes for schools and the property taxes for city and county : $1,950 school district taxes + $4,590 city and county taxes = $6,540 total property taxes due
Installment Sale Method
Under the installment sale method, the gain is received over a number of years and the seller recognizes the gain for tax purposes over the same period. The installment sale method relieves the seller of paying tax on gain not yet collected. Generally, it calls for the gain to be reported only as payments are actually received, with each payment treated as part profit and part recovery of investment in the property sold. If an installment sale results in a loss, however, the seller may not use the installment sale method to report the loss over a period of years for tax purposes. A qualified loss must be recognized (reported) in the year of sale. Because the IRS requirements regarding the installment sale method are complex, early tax counsel is mandatory.
Protest Procedure
When a Florida property owner feels the assessed value is inaccurate or does not reflect fair market value, the owner can use the following three-step protest (tax appeal) procedure. Step 1 The first step is to seek an adjustment by contacting the county property appraiser or a representative of that office. If the arguments of the property owner are valid and have a basis in fact, the county property appraiser is authorized to make a change and to lower the assessed value. Step 2 If the property owner's request for an adjustment is rejected, the owner may file an appeal (petition) with the Value Adjustment Board. A property owner is allowed 25 days after the Notice of Proposed Property Taxes (TRIM notice) is mailed to file an assessment appeal. The board is composed of five members: two county commissioners, one school board member, and two citizen members. if the board agrees with the taxpayer that the assessed value of the property is too high, the board has the authority to change the assessment. If the board decides that the county property appraiser assigned the correct assessment value, the board will reject the taxpayer's request. Step 3 The final step available to a property owner seeking a change in assessed value is litigation in the courts. The taxpayer may pay the taxes under protest and file a suit (a certiorari proceeding, meaning a review of the matter by the courts) against the county property appraiser and the county tax collector. The property owner's petition must be filed within the statutory period (Chapter 194, F.S.). The court may not arbitrarily assign an assessment value to a property. It may, however, specify the methods and procedures that the county property appraiser should use in reassessing the subject property. If the court judges the original assessed value to be just and equitable, the property owner has used all the steps available under the protest process, other than to appeal to a higher court.
The exclusion of gain from the sale of a principal residence is up to $500,000 of gain for married couples who file a joint return.
true. The exclusion of gain from the sale of a principal residence is up to $250,000 of gain, or up to $500,000 of gain for married couples filing a joint return, provided the taxpayer-homeowner had occupied the residence for at least two of the last five years
Property taxes become a lien on January 1 and are junior to mortgage liens.
false. Property taxes constitute a lien superior to all other liens on real property. Property taxes become a lien on January 1 each year.
Exemptions From Property Taxes
immune properties are city, county, state, and federal government properties exempt properties include property belonging to churches and non profit organizations. exempt properties are subject to taxation, but the owner is released from the obligation Partially exempt property is subject to taxation, but the owner is partially relieved of the burden. For example, all owners of homesteaded property are granted a partial tax exemption. For this reason, one cannot always regard the assessed value of a property as the taxable value of that property. The taxable value of a property is not known until existing exemptions are subtracted from the assessed value. Taxable value (nonexempt assessed value) is determined by beginning with assessed value and subtracting appropriate exemptions.
Depreciation
is a means of deducting the costs of improvements to land over a specified period. The land itself is not depreciable. Depreciation (or cost recovery) allows taxpayers to recover the cost of depreciable property by paying less tax than they would otherwise have to pay
Special Assessments
is a tax levied on property to help pay for a public improvement that benefits the property. Laws require that to charge a special assessment, the property must benefit (increase in value) because of the improvement. Examples of special assessment taxes include paving streets that previously were unpaved, installing street lights, hooking up water and sewer services, installing sidewalks, and so forth.
Taxable income
is the amount of income that remains after all applicable deductions and adjustments to income are applied.
Debt service
is the amount of money needed to meet the periodic payments of principal and interest on a loan that is being amortized. Investors may deduct the interest paid on the mortgage loan, as well as the costs of obtaining borrowed money. Mortgage interest is deductible in the year paid. Loan origination fees and points are only deductible if charged as a percentage of the loan amount. These fees and points must be amortized over the life of the loan.
A short-term capital gain is the sale of an asset held for less than 12 months
true. Capital gains (and losses) are either short term (the asset is held for less than 12 months) or long term (the asset is held for more than 12 months).
Floridians who have a homestead with an assessed value above $75,000 and who reside on the property as their permanent legal residence are eligible for a $50,000 homestead tax exemption
true. Homeowners are entitled to a $25,000 homestead exemption from the assessed value of the home for city, county, and school board taxes. Homesteaders with assessed values greater than $75,000 are entitled to an additional $25,000 exemption from city and county taxes (but not school board
Government buildings are immune properties—that is, government buildings are NOT subject to taxation.
true. Immune properties are government buildings (city, county, state, and federal government properties) plus special categories that have been made immune by a statute or ordinance, such as municipal airports. Immune properties are not subject to taxation.
