Florida real estate - how much will it cost? *
In order to avoid unpleasant surprises and complications, you should make the following considerations well before your purchase. Due to the clear regulations of the American real estate law, a property purchase or sale is handled just as securely as in Germany.
Even before the contract is signed, it should be determined which form of ownership is best for you. As in Germany, there are different possibilities of real estate ownership, for example private ownership, common ownership, ownership via a company or fiduciary ownership. Each form of ownership has consequences with regard to costs, liability of the owner, tax consequences and the consequences in the event of the death of an owner (inheritance regulation).
Real estate transfer taxes
You become the owner of real estate in Florida by being registered in the public records, comparable to the German Land Register. In most cases, a deed tax of 0.7% of the purchase price must also be paid upon registration (in the U.S., these fees are referred to as stamp taxes). This is usually paid for by the seller. If the buyer needs financing, a mortgage must be registered on the property. A tax (fee) of 0.35% of the loan amount is payable on the mortgage and 0.2% of the loan amount is payable on the promissory note. In Germany, this corresponds to the entry of a so-called land charge in the Land Register, which is also subject to a charge - i.e. no differences.
Foreign, non-resident natural persons are taxed in the U.S. only with regard to income from U.S. sources. This includes income from immovable assets located in the United States. Since the Double Taxation Agreement (DTA-USA) also provides for the taxation of income from immovable property and gains from the sale of immovable property in the State of Occupation, a German investor who directly owns a property in the U.S. is generally subject to U.S. income tax on all income from this property.
What happens if you sell your property again? Then the U.S. tax authorities levy a withholding tax as a precaution. If the property is sold, 10% of the sales price is automatically retained on a trust account of the processing title company or a lawyer upon closing and then transferred to the U.S. tax authorities (FIRPTA Withholding - Foreign Investment Real Property Tax Act). At the end of the year, the income tax return is used to offset the profit against the withholding tax paid. Overpaid taxes will be refunded - underpaid taxes will be reclaimed.
Capital gains tax on capital gains
A U.S. capital gains tax is payable on the sale of a vacation home. The rate depends on how long the property has been held.
- less than 12 months (tax rate 10 % to 35%)
- longer than 1 year - Long-Term Capital Gain - (tax rate maximum 20%)
The low tax rate was originally planned only until 2010. On December 17, 2010, President Obama signed a law extending this regulation until the end of 2012. For sales after December 31, 2012, the tax rate will then consistently rise to 20 percent. The tax rates of 20% and 10% are reduced to 18% and 8% respectively if a minimum holding period before disposal of 5 years is exceeded. Please note that the capital gain must also be stated on the German tax return. Double taxation of capital gains is avoided by the double taxation agreement between Germany and the United States, and is only subject to the progression clause.
In Germany, you have to wait much longer to get favorable tax rates - another advantage. If you immediately reinvest the capital from your sale in a new real estate project, you can carry forward the taxes and offset them against charges from the new investment. This is called a 1031 Exchange (similar regulations apply in Germany). It may therefore be worthwhile to seek the advice of a tax specialist.
Tax identification number
Since November 3, 2003, every real estate buyer/seller must have a tax ID number before the tax authorities (IRS) approve the withholding tax. Usually it takes several weeks until this number is issued. Since the tax ID number must be submitted within 20 days of the transfer of ownership, it should be obtained before any contract for sale is entered./p>
Income tax - Taxation of rental income
In addition to the federal government, all states except Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming levy their own tax on household income. In Tennessee and New Hampshire, however, only income from interest and dividends is taxed. Profit-oriented companies are taxed in all states except South Dakota, Texas, Nevada, Washington and Wyoming. In addition to the states, some municipalities and counties such as New York City, Philadelphia and Cincinnati also levy a separate income tax, which must be paid in addition to federal and state taxes.
The State of Florida does not levy income tax on individuals. This means that income from the leasing/leasing of real estate is subject exclusively to federal income tax.
Under IRS regulations, non-residents are required to pay federal income tax on their real estate investment (the U.S. is not a tax haven) by filing Form 1040NR. Before completing a tax return, you must have applied for an Individual Taxpayer Identification Number (ITIN) through Form W-7. You can subtract all expenses of the property from your rental income. A profit is taxed according to the respective US tax rates in the USA. Current tax information can be found at: https://www.irs.com/.
Please note that you must also declare your rental profits in your home country (e.g. Annex AUS of your German income tax return). This also happens if the property is held by a partnership or by a US corporation (e.g. an LLC). In Germany, this income is not taxed again, but is taken into account in your German tax rate in accordance with Art. 23 Para. 2 of the DBA (progression reservation in accordance with §32b EStG). This means that you will have to pay a slightly higher income tax on your income in your home country (e.g. Germany).
If the owners spend considerable time of the year in the States, they can also be considered as American citizens (resident) with regard to tax matters. The result is that all worldwide income is taxed. It should therefore be examined when the provisions are relevant and whether favorable tax agreements exist between the U.S. and the home country (double taxation agreement - DTA). The U.S. has an appropriate DTA with Germany and therefore the rules are clearly defined. Since the State of Florida and its counties and municipalities do not levy income tax, the necessary state funds must be collected through other means, e.g. property tax.
The property tax is levied once a year by the City, (County) (School District) and is based on the current estimated value of the property. The estimated value is determined by the county or city tax appraiser. Each of these bodies can levy a maximum of 10 mills (10 per thousand = 1%) tax per year. Depending on the affiliation of the property, a maximum of 3% land tax per year can therefore be incurred. On average, the tax rate is between 1.0 and 1.75% of the tax base. The notification is usually sent in the fall of each year. Payment must be made by the end of April of the following year. Current information of the individual counties can be found in the following link:
For all rentals that are less than six months, you must pay sales tax and tourist tax. Sales tax is comparable to VAT and the tourist tax is a kind of local tax. The sales tax in the state of Florida is currently 6.5%. The tourist tax varies between 3% and 5%, depending on the county. These taxes are to be paid monthly or quarterly (online processing is possible). The sales and tourist tax is usually paid by the tenant of your vacation home.
In the event of the death of a non-resident owner, his Florida property may be subject to probate proceedings. Usually it depends on the value of the estate. The property may only be sold with the consent of the probate court. However, you can easily avoid this potential issue by making the necessary preparations.
The above information should serve as general information and does not replace legal or tax advice.
On the subject of inheritance tax, a lawyer specializing in tax law who is very familiar with both American and German law should be consulted. There are many ways to keep the inheritance tax low.
Maintenance costs of the property
The largest item on the list of maintenance costs in Florida is the relatively high property tax. Total maintenance costs including property tax of about $1,600 per month should be taken into account. Below is a sample calculation for a $450,000 property (off water) in Cape Coral. Depending on the scope and frequency of the services booked, the costs for lawn care and pool services can also be significantly higher.
Florida Property (Value: $300,000) - monthly charges
Rental income of the property
With an annual occupancy rate of 50% and a rental rate of $1,100 / week, the annual revenue is $28,600 per year. If you have handed over your property to a rental agency, you will have to transfer about 20% of your income to this agency as commission if you do not want to take over the international marketing of the property yourself. This leaves approximately $9,400 (excluding agency costs) per year. Sales and tourist tax (together about 11.5%) and the costs for the final cleaning will be paid by the tenant and added to the weekly rent. So you won't get rich with a rental, but that is not necessarily the purpose of an investment in Florida. Instead, look at the expected increase in value of your property over the next few years. In addition, you save the accommodation costs for your own stay in Florida. At four weeks this would cost $4,400. If you want to buy a Florida property - talk to us. If you are now interested in information regarding the purchase procedure, please read the menu item "Purchase Transaction".