What Are the Tax Advantages of Investing in Real Estate in Florida?

Florida, being a tax-friendly state, is the number #1 reason why many people want to move to the state. The benefits extend far beyond its beautiful year-round weather and pristine golf courses.

The state is a haven for tourists seeking sunny beaches and warm weather. But more than that, the Sunshine State is a hotspot for real estate investors. Many investors admire this place for a number of reasons. The first reason is its tax benefits, along with a booming economy and growing population. They make the Sunshine State an attractive destination for real estate investment.

It has plenty to offer to those looking for real estate investment. If you're here to understand the tax advantages before starting your investment journey, you're exactly where you need to be. Let's understand the tax advantages of real estate investing in Florida.

1. No State Income Tax

In 2019, Florida became one of seven states with no individual income tax. The other states are Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming.

The lack of income tax allowed people to save more of their earnings. The state makes money from the millions of visitors it attracts each year. It charges a 7% sales tax and a 5% county tourist tax on hotel stays and short-term rentals (stays of six months or less).

2. Homestead Exemption Lowers Property Taxes

Like many other states, Florida offers a homestead exemption. This policy helps residents from losing their primary residence because of financial difficulties.

However, different states have different rules for exemption. In Florida, if you own a home on January 1st of the tax year, it gets a $25,000 exemption on the first $50,000 of assessed value. Some states set limits on the amount of exemption a debtor is entitled to, like $20,000.

Such states are Alaska and Colorado, which have set rules based on the property’s size, type, and age.

The biggest benefit of the homestead exemption in Florida is that it prevents property taxes from rising too much. It also helps protect the home from creditors if the homeowners go bankrupt. Other tax benefits on properties are

Save Our Homes limit: After getting a homestead exemption on your property for the first year, the value of your home for tax purposes can’t go up by more than 3% each year. If the Consumer Price Index (CPI) rises less than 3%, then the increase in your home’s value for taxes will be based on that lower percentage instead. This rule helps keep property taxes from rising too quickly.

Fallen Heroes Family Tax Relief Act: It offers surviving spouses of veterans or first responders who died while serving a full property tax exemption on their home in Florida. Additionally, it includes exemptions for permanently disabled veterans.

3. Capital Gains

Real estate capital gains are one of the best tax advantages of real estate investing in Florida. It is the reason why many people are diving into the pool to earn more wealth. Since the state doesn't have a personal income tax, the taxes on profit from selling real estate are low. The profit you earn is capital gains, and the taxes you pay on them are capital gains taxes.

In the entire U.S., it is one of those eight states that do not tax capital gains. California has one of the highest rates, taxing capital gains at 13.3% for the highest earners. And in Georgia, tax on capital gains is like regular income, with a rate of up to 5.75%.

4. Tax-Friendly 1031 Exchange Rules

A lot of investors avoid paying taxes when selling real estate in Florida. The 1031 exchange allows them to do so, which has many benefits to offer. In this rule, an investor can exchange one investment property for another. They also postpone paying capital gains taxes.

As per Florida's 1031 exchange rule, you have 45 days to find the replacement after closing your home sale. In total, you have 180 days to complete the purchase to avail yourself of the advantage of the 1031 exchange.

5. Business-Friendly Tax Incentives for Investors

So far, we've learned how great Florida is when it comes to saving taxes. But the state is truly exceptional for investors. Because the tax environment is favorable to investments in rental properties.

Real estate investing here is more relaxed compared to other states thanks to Florida’s stable rental and housing markets. Many people move here because of the growing economy, job opportunities, and other benefits. But the biggest reason is that Florida has no personal income tax.

What You Need to Know Before Investing

Regardless of the field you choose, there's always some level of risk associated with investments. It’s very important to understand the market, set clear goals, learn what you need to know, and stay updated. But more important than that is staying informed about law, facilities, and risks. It helps crack a great deal.

Additionally, you need to be sure about the location you want to invest in. The right location can save your asset from expensive repair and maintenance. You would not want to be affected by powerful hurricanes, right?

Ultimately, you’d want to minimize risk as much as possible or, ideally, avoid it altogether. If so, consulting with a subject specialist can help you make informed decisions.

Takeaway

Florida offers significant tax advantages to its residents. It has a great climate, a booming job market, and low living costs. With stunning beaches, Disney, and national parks, it’s a top destination. But what truly stands out in investors' eyes is the no-state income tax, property tax exemptions, and favorable 1031 exchange rules.

When you want to be successful in Florida real estate investment, you must choose the right location. It is the primary factor that will affect your returns in the long run. Most important of all is being aware of fraud, potential risks, and weather conditions like hurricanes.

There are indeed a lot of tax advantages to real estate investing in Florida. To make a safe and successful investment, you can consider getting advice from experts. If you’re ready to plan your real estate investment, contact DBL Capital to make a safer move. Our expert team will assist you every step of the way, ensuring you make informed decisions and maximize your investment potential.