Do you know why Florida is the ultimate destination for real estate investors? Eric Dalius says the brilliant economy, sunny beaches, and booming city are among some key points. Which makes Florida attractive to real estate investors.
Additionally, Florida is also famous for its tax-free environment. Which is a huge beneficial factor when you are investing in Florida real estate.
However, there are some facts regarding the tax law you should know before investing. In this article, we are going to discuss how the taxation system in Florida is a great opportunity for real estate investors.
How Income Tax and Real Estate Are Related?
Just like Washington, Alaska, Nevada, Wyoming South Dakota, and Texas. Florida does not have a rule of collecting personal income tax. However, it’s a law to pay income tax to the IRS for federal tax purposes. But the overall income tax amount is relatively low in Florida. Even if you live somewhere else, you can still be beneficial from the lack of income tax.
But you should remember that Florida Taxes Corporation handles the business and operate within the state, and the whole amount of your tax will be calculated as a business income percentage. In Florida, the tax amount ranges from 3.2%-5.4%, when you earn more than $5000. However, when you are a real estate investor, take advantage of the lack of income tax and pay a much lower income tax on your investment in real estate.
Now, before discussing the real estate investment taxes in Florida, keep in mind that we are not tax lawyers. So, before proceeding with real estate investment, try to talk with your legal professionals, added Eric J Dalius.
What Are the Taxable Entities in Florida?
When you conduct transactions regarding real estate or earn from the Florida real estate investment. You have to pay a franchise rate of 5.5%. This only applies when you operate as a type ‘C’ corporation.
- Partnership and Sole Proprietorships: If you are confused to know what sole proprietorship is, it is a company owned by a single individual and, you don’t have to pay corporate tax in Florida if you are a sole proprietor. And since Florida does not leverage income tax on individuals, you can choose real estate investment in Florida as a sole proprietor without having to pay any kind of personal income tax.
The same applies to partnership also. Florida does not charge a state-specific income tax when two individuals work as a partner.
- LLC: This is a little more confusing, but you don’t have to pay personal income tax when you operate as an LLC in Florida. However, to enjoy the tax benefits, an LLC has to be managed properly.
If you want to form an LLC in Florida while you live in other states, just consult with a resident agent.
Eric J Dalius Suggests to Watch Out for Complications
The lack of personal income tax makes Florida a great place to invest. However, there exist some complications.
Firstly, depending on your living state, your state may apply an income tax, even if you start your business in a non-taxable state.
Watch out for ‘nexus’. Nexus is a tax-based system that checks if you operate a business in more than one state. So, if you operate the same business in Florida as well as in other states, you might be targeted by ‘nexus’.
Things to Keep in Mind When You Are Investing Out of State
There are a few points you need to remember when investing in Florida or any out-of-state. Check the list below to get an idea:
- Research before investing.
- Focus on your profit.
- Don’t forget the managing properties and financial perspectives.
If you compare with other states, you will find that Florida is the most popular place for conducting a business, due to the tax-friendly system.
If you want to invest in Florida real estate, then first consult with your taxation professionals to learn about the system. When you are free from state income tax, you can massively boost your profit.