What You Need To Know About Taxes On Your Rental

This article explores what you need to know about taxes on your rental income. What tax returns do you have to file, and how do you file them? This is often a minefield for foreign investors who don’t know much about the way taxes are calculated in the county and state their investment home is located. Each rental home is considered a business, and you’ll need to file a yearly US federal tax return as long as you own the property.

Property Taxes

Property Taxes: Unlike other places, property taxes are payable by the homeowner in Florida. These may be levied by the city and the county where your home is located. In the USA, property taxes belong to the property owner, not passed onto the tenants, and there is no resident’s tax; the residents don’t receive a bill from the local government for living there. So, when you own a rental home in Florida, you must pay property taxes. So if you bought a vacation home in Orlando, Kissimmee, Davenport, or anywhere in Florida, short-term or long-term rental, this information is important to you.

How Are Property Taxes Calculated

The property tax assessment is based solely on the perceived fair market value the county believes the property is worth. The taxes are levied to pay for public services such as emergency services, libraries, schools, local government, etc. There is no discount for seasonal residents, second homes, or rental homes. You cannot say you don’t use the services and will not pay the taxes. Your tenants won’t receive a bill and are not held liable for property taxes.

Who Pays Property Taxes

As the homeowner, you are fully accountable for the property tax bill. If you don’t pay your taxes, they will foreclose on your home and sell it to pay off your property tax debt. The law states you are still liable even if you didn’t receive a tax bill.

Does My Mortgage Company Pay My Property Taxes

Some mortgage companies include these taxes in your monthly payments, while others don’t. Call your local county office and ask for the tax collector’s office to ensure you are up to date with your payments. I know that a lot of the mailing addresses, especially for foreign owners, have been entered incorrectly into public records. So, please check with your local County and city to ensure they have your correct mailing address. If you’re unsure who to contact, start by Googling your address and ask what county your home is in.

When Should I Pay Property Taxes

Property tax bills are usually mailed out yearly around October and are due and payable by November 30. Payments after that date incur late fees and interest. You have up until the end of March to pay them. Then the county sells them at auction to the highest bidder with interest rates as high as 20%.

What Happens If I Don’t Pay Property Taxes

After three years of non-payment, your home will be sold on the county steps to pay its debts. The sellers or the buyers aren’t interested in what your home is worth. It will be sold to clear the debt, and that’s all. This is how people can buy $200,000 homes for $15,000 cash in outstanding taxes. This issue is more widespread than you might imagine, especially when you don’t have a mortgage.

How Do I Check To See If Property Taxes Have Been Paid?

Most counties have a website where you can check if your rental home is in Kissimmee and your property is in Osceola County. Here’s Osceola’s tax collector If your home is in Davenport or the surrounding area, you might want to check out Polk County’s Tax Collector. If your home is in Orlando, you’re probably in Orange County. If your home is in Clermont, here’s Lake County’s tax collector https://laketax.com/property-taxes/

what you need to know about taxes on your rental

If your mortgage company pays your property tax bill, they do so out of your escrowed funds, and it will be noted in the bottom section of the bill. If you have no mortgage and haven’t received a property tax bill, get on it immediately. You could be in danger of losing your home. If you are making mortgage payments, in most cases, the bank will bring unpaid taxes to your attention!

Sales and Resort Tax

In Florida, no rental taxes are due on long-term rental income if the same residents live in your home for more than 27 weeks. If your home is licensed as a vacation rental and you’re moving to long-term rentals, you must inform your local tax collector to cancel your license. Some areas require you to have a different occupational license. This must be changed from a short-term rental license to a long-term one. The local government may require you to provide them with proof of this change, such as a signed lease.

Sales and Resort ( Bed) Taxes vary from County to County.

State sales tax and county resort tax are due on every rental you place in a vacation home. Florida’s 6% state sales tax, plus any applicable discretionary sales surtax, applies to rental charges on vacation rental homes when guests occupy the house for rental periods less than six months and one week. This is often called “transient rental accommodations” or “transient rentals.

Resort Tax

Each local county charges an additional tax referred to as resort tax. So, for example, you could be paying 7% sales tax and 5% resort tax on each rental. There are no exceptions on these taxes. Some owners think they are NOT responsible for the taxes if the property manager places the booking in their home, but they are. Contact your local county as listed above and the State of Florida sales tax office for further details.

How Much Is State Income Tax In Florida?

For decades, Florida has had one of the lowest tax burdens on its residents. Florida has no state income tax. If you’re moving to Florida from a state that levies an income tax, you’ll be pleasantly surprised when you see your first paycheck. The state constitution prohibits State Income tax, though Floridians still have to pay federal income taxes. Here’s a link to a Florida government site where all the taxes and their rates are explained in detail.

Federal Tax Returns

File Your Federal Tax Returns
File and pay your USA federal tax returns on time.

If you’re a US resident, you must file your tax returns yearly. Don’t forget to include any rental income or income from stocks and shares on your tax return. If you are a foreign investor/homeowner, you must obtain a Tax Identification number, often called a TIN. The tax year in the USA runs from January through December. Your management company should provide you with a 1042s form which you’ll need to give your accountant to submit your tax return. Some send out 1099’s. The 1099’s are given to US residents, so if they give you one. Ask them for the right form. The deadline for your yearly submission is May each year. Your need to comply with USA laws and not knowing about them is no defense. Here’s a link to their website for further information. https://www.irs.gov/individuals/international-taxpayers

What’s Tax Deductible

USA federal tax returns allow you as a foreign investor to deduct all your yearly federal tax return expenses, such as HOA fees, property management fees, mortgage interest, cleaning, and repair costs. You can also claim a portion of your travel expenses to inspect your home yearly. Rental homes are currently considered depreciable assets. Even though you may have a positive income figure, you should still have a negative taxable income under current US laws. This enables you to show a capital loss on your tax return which can offset any capital gain when it comes time to sell your rental home. Please talk to your accountant for further details.

If you don’t submit your yearly Federal tax return, then by law, your management company is supposed to withhold 30% of your gross rental income and send it to the IRS. You’ll get it back, but it takes a while. Best to get your tax I.D number as soon as possible. If you’re unsure how your accountant in the USA can help you. If you don’t have one, ask your current management company or us for a recommendation. Call McCormack Realty & Renters Choice Homes for home sales and long-term rentals. We service homes in Kissimmee, Davenport, Clermont, and Orlando. 407 933 2367 UK: 0161 300 9595 hello@renterschoicehomes.com

About the author, Anne-Marie McCormack

Anne-Marie McCormack has been a Florida licensed Real Estate Broker since 1996. She has worked as a realtor in property management, rentals and sales in Kissimmee, Davenport, and Orlando, Florida since 1991.

She heads the team at McCormack Realty & Renters Choice Homes and has lots of experience with long-term and short-term rentals and sales. . Anne-Marie owned and operated a short-term-rental, property management company from 1994-2004. Since then McCormack Realty & Renters Choice Homes has focused on long-term rentals and sales of residential, investment homes and vacation homes also known as holiday lets.

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