I
am not a Certified Public Accountant (C.P.A.), nor do I recommend
that you act upon the advice of anyone but a C.P.A. in reference
to your personal tax situation. In this chapter, I will attempt
to give you a simple, general overview of the taxes that you will
encounter when you purchase
an income producing vacation home. It is important that you receive
good tax guidance in order to avoid overpayment or penalties.
If you are a non-U.S. resident purchaser, your real
estate broker or agent should be able to recommend a firm
that works with international clients. Non-U.S. residents may
encounter laws that are specific to their status and filing situation.
Because every taxpayer's circumstances, and the forms required
for their return, are different, I will refrain from mentioning
form identification numbers. Also, the following information is
based on the current tax laws at the time of this writing, which
are subject to change.
If
you are a U.S. resident, you are probably aware of the fact that
the income generated and deductions, whether it is for one, or
multiple income producing properties, must be reported to the
Internal Revenue Service on your annual U.S. income tax return.
Essentially, the same is true for a non-U.S. resident alien, but
an additional form will probably be necessary to claim an exemption
from withholding of United States income tax through the net basis
election.
Unlike U.S. residents, married non-residents cannot file a joint
return (file together as one) if the property is jointly owned.
Although this has little overall effect on the tax liability,
it does increase the cost to prepare two returns if you are paying
a C.P.A. for services.
The
income tax rate that is paid has ranged from 15% to 39.1% based
on income. Deductions that may be claimed include, but are not
limited to, repairs, supplies, utilities, advertising, cleaning,
maintenance, commissions, mortgage
interest, property taxes, tax return preparation fees, management
fees, insurance,
and depreciation. Larger expenses, such as a pool heater, furniture,
and some large repairs, are usually capitalized to be depreciated
over future years. Your C.P.A. will instruct you on the appropriate
deduction period, from five to 27.5 years, to use for each specific
item. There may be limitations on certain expense deductions depending
on how often you use your home.
Can
you deduct your travel expenses when you visit your property?
The answer is yes, if the trip is primarily for business purposes.
Only the expenses directly related to your rental property can
be deducted. The airfare and certain travel related expenses,
such as, but not limited to, car rental, local transportation
to and from meetings with property
management, as well as business meals, might be deductible.
Can
you receive a deduction or credit for taxes that you pay in your
home country on your U.S. tax return? Sorry, but no. If there
were a worldwide income tax return then it might be different.
Although
there is no Florida state income tax, real property taxes are
calculated by the county tax authorities. Values are assessed
annually and the assessment notice will be sent to you (or your
mortgage
holder if your taxes are deposited monthly with them) in November.
Either you or your mortgage
holder is then required to submit the payment.
If
your home is to be rented for periods of time less than six months,
you will be required to pay sales tax to the State of Florida,
Department of Revenue, on transient rentals. Additionally, a tourist
development tax must be paid monthly to the county in which your
property is located. Sales tax and tourist development tax must
be collected on all rental income from properties located in Florida
regardless of where the rent is collected. Properties rented for
periods longer than six months are not subject to these taxes.
Additionally,
a Tangible Personal Property tax return, that details any personal
property contained in, but not attached to, the rental house,
is required to be filed annually with the county in which the
home is located.
The
last tax you may pay on your vacation property will be a capital
gains tax for any realized profit on the eventual sale. Again,
your C.P.A. or tax consultant will advise you of any options that
could save you money.
