Taxes on Rental Income | Florida Rental Income Florida

Do you own a rental property in Florida? Find out how to correctly file for tax return and what taxes you need to pay.

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

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/

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

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

To report rental property income on your taxes, start by gathering all relevant financial records, including rental income, expenses, and any deductions. Use Schedule E (Form 1040) to report your rental income and expenses.

On Schedule E, list the total rent received for the year. Then, itemize deductible expenses such as mortgage interest, property taxes, insurance, maintenance, and repairs. Subtract these expenses from your rental income to determine your net rental income or loss.

If you have multiple properties, complete a separate Schedule E for each. Combine the totals on the first page of the form.

Transfer the net income or loss to your Form 1040. If your rental activity is considered passive, you can typically deduct up to $25,000 of loss against other income, subject to income limits.

Remember, accurate record-keeping is essential. Consider consulting a tax professional to ensure you’re correctly reporting your rental income and maximizing deductions while complying with IRS regulations.

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.

Common Rental Property Tax Deductions in Florida

Owning a rental property in Florida offers the potential for significant income, but it also comes with responsibilities, including understanding the tax deductions available. By taking advantage of these deductions, you can reduce your taxable income and increase your profitability. Here’s a closer look at common rental property tax deductions in Florida:

1. Mortgage Interest

Deducting Mortgage Interest One of the largest tax deductions for rental property owners is mortgage interest. If you have a mortgage on your rental property, you can deduct the interest paid on the loan. This applies to loans used to purchase the property as well as loans taken out for improvements or repairs.

How It Works Each year, your lender provides a Form 1098, showing the amount of interest paid. You can deduct this amount on your tax return, helping to lower your taxable rental income significantly.

2. Property Taxes

Annual Property Tax Deduction Florida property owners pay annual property taxes to local governments. These taxes are fully deductible as a rental expense. The deduction applies to taxes paid on the property itself and any associated land.

Why It Matters Property taxes can be a substantial expense, especially in areas with high property values. Deducting these taxes helps reduce the overall cost of owning the rental property.

3. Repairs and Maintenance

Deducting Repair Costs Costs incurred for repairs and regular maintenance of the rental property are deductible. This includes fixing broken windows, repairing plumbing, repainting, and any other actions taken to keep the property in good condition.

Maintenance vs. Improvements It’s important to distinguish between repairs (deductible in the year they are made) and improvements (which must be depreciated over time). Repairs keep the property in good working order, while improvements increase its value or extend its life.

4. Depreciation

Understanding Depreciation Depreciation allows you to deduct the cost of the rental property over its useful life, typically 27.5 years for residential properties. This deduction reflects the wear and tear on the property over time.

Calculating Depreciation You can depreciate the building’s value, excluding the land. The IRS provides guidelines for calculating the depreciation amount each year. Depreciation is a non-cash deduction, meaning you don’t have to spend money during the year to claim it.

5. Insurance Premiums

Insurance Costs The cost of insuring your rental property is fully deductible. This includes homeowner’s insurance, liability insurance, and any other policies related to the rental property, such as flood or hurricane insurance.

Annual Premium Deduction You can deduct the insurance premiums paid during the tax year. If you prepay insurance for multiple years, you’ll need to spread the deduction over the coverage period.

6. Property Management Fees

Deducting Management Costs If you hire a property management company to handle day-to-day operations, such as finding tenants, collecting rent, and handling maintenance, the fees paid for these services are deductible.

Professional Management Advantage While property management fees reduce your rental income, they can also save time and hassle. The tax deduction helps offset these costs, making professional management more affordable.

7. Utilities

Utility Payments If you, as the landlord, pay for utilities like electricity, water, gas, or trash removal, you can deduct these expenses. This is common in multi-unit properties or in cases where utilities are included in the rent.

Partial Deductions If tenants reimburse you for utilities, only the portion you paid out-of-pocket is deductible. Keep detailed records of utility bills and tenant payments to ensure accurate deductions.

8. Legal and Professional Fees

Deducting Professional Services Legal and professional fees directly related to managing and operating your rental property are deductible. This includes fees paid for legal advice, tax preparation, accounting services, and professional consultations.

Why This Matters Whether you need legal assistance for lease agreements or professional help with your taxes, these costs can add up. Deducting them reduces the financial impact on your rental income.

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