Tax Benefits of Investing in Florida Real Estate

Every real estate investor in Jacksonville faces the same question at one point or another in their journey – Where would my property investment dollars thrive the most?

Finding the most lucrative area for an investment can be a complicated task and requires knowledge and experience in real estate ownership.

Florida is a long-standing favorite among real estate investors for a reason. The mix of snowbirds, foreign capital, retirees, and a booming coastline makes the Sunshine State a great location to invest in.

Plus, it’s a tax-friendly state for anyone looking to buy an investment property.

In this article, we’ll teach you all about the accompanying tax benefits when investing in Florida’s real estate to help you maximize your investment’s earning potential.

Benefit #1: No individual income tax

Florida is one of the seven states that forgo individual income taxes in 2019. The others are Alaska, Nevada, South Dakota, Texas, Washington, and Wyoming.

This signifies that the overall income tax is lower in Florida. As real estate investors, you’re able to reap benefits from this.

While the little to no income tax sounds good on paper, there are potential risks you need to be aware of. Depending on where you live, your state could authorize a tax on income that’s generated out of state. The fact that your legal entity isn’t taxable in Florida won’t hold any importance.

Does your business operate in more than one state even though it’s based in Florida?

florida job growth and real estate industry investors

You might be subject to regulations based on nexus. In general, nexus means a connection between taxing jurisdictions, such as states. The laws regarding nexus taxes are complicated, to say the least. There many nuances depending on your particular conditions. Consult with an experienced legal professional to learn more about your situation.

Benefit #2: No distinct tax on sole proprietorships and partnerships

Businesses owned by single individuals are sole proprietorships. In Florida, there are currently no specific business or corporate taxes on these entities. As there are no income taxes as well, you’re able to make real estate investments without paying any state income tax.

Additionally, there are no distinct taxes on partnerships in Florida. That’s something to note because most states do tax all the generated revenue from partnerships. As a result, you can invest in Florida real estate in two ways while skipping any state income tax.

Benefit #3: Leverage LLC to skip income tax

LLC comes with the potential to avoid income tax as well. Nevertheless, you need to set up the LLC in the right way for this to work properly. When not well taken care of, the generated revenue could be taxed by Florida’s corporate standards. That’s because the LLC could be set up as a corporation defined by Florida’s tax

florida housing market investments and real estate investing

If you are the only owner of the LLC, then it’s defined as a disregarded entity. You won’t have to pay any income tax. When you are living in another state, you’ll need an agent residing in Florida. This agent will be your “resident agent”. In this case, your LLC is made of multiple parties. Still, the LLC is defined as a partnership, which means you’ll effectively skip being subjected to any associated taxes.

Benefit #4: Invest in Opportunity Zones

The Opportunity Zone incentive encourages long-term investments. Specifically, money put into rural and low-income urban communities all over the States. The Tax Cuts and Jobs Act of 2017 established this instrument.

Participation in the program offers tax savings for real estate investors. In 2019, there are over 400 designated opportunity zones in Florida. For example, suitable zones are in Miami-Dade, Orange, Palm Beach, Polk, and Volusia counties. Check with the Florida Department of Economic Opportunity for the latest information.

Are there any other benefits in FL real estate investments?

Yes, the benefits aren’t based on taxes alone. Florida has a stable rental base compared to many other states. There’s a high percentage of retired people looking to rent that serve as great tenants. Some of the reasons include:

  • They have a regular income
  • They tend to stay longer compared to younger tenants
  • On average, they treat the properties better than younger renters

Additionally, the housing market is relatively stable in Florida. This is good news for investors because there’s a strong chance that your investment properties will appreciate over time. In turn, this will help to grow your equity. When the time arrives, you could make a good profit on the sale of your rental property.

Florida real estate market and rental property investments

Investing in well-developed Florida communities such as Jacksonville ensures the properties connect reliably to essential services. These include natural gas, sewage, and water. You’ll be able to plan the utility costs while providing high living standards to the renters.

Plus, in Jacksonville, the last few years have seen a growth in rental rates. Even though the housing price averages aren’t high in Florida, many people still prefer to rent their home instead of making a big purchase.

The bottom line: tax benefits of investing in Florida

Jacksonville, Florida serves as a great spot for real estate investors. The liberal tax climate favors rental property investments as there’s no individual income tax. Also, you could use sole proprietorship, partnership, and LLC entities for financial management.

There are other benefits as well. The Sunshine State has a stable housing and rental market. Compared to many states and areas, you can enjoy a more relaxed experience of conducting real estate investments.

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Andrew Gifford and his team of professionals are easily the best realtors and property managers that I have ever worked with. They provide first rate service in an extremely timely manner. Whether you are a landlord, tenant, or prospective real estate buyer, I highly recommend the services of Andrew Gifford and his real estate team for all your property needs!

Jeff Tillman