USA – FLORIDA Law and Practice Contributed by: Eduardo M. Soto and Fabio Giallanza, Weiss Serota Helfman Cole + Bierman, P.L
ment is recorded. In portfolio financings, parties may mitigate tax by limiting recorded mortgage amounts or using multi-state apportionment and maximum-lien language, reducing the stamp tax base on recorded security documents. All structures require careful planning to avoid unintended reassessment or look- back taxation under Florida law. 8.3 Municipal Taxes Florida counties and municipalities may levy a Local Business Tax (formerly called an occupational license tax) for the privilege of engaging in or managing a business, profession or occupation within their juris - diction. This tax is authorised under Chapter 205, Florida Statutes, and is typically evidenced by a Local Business Tax Receipt (LBTR), which must be obtained annually for each business location, including offices, retail space and sometimes home-based operations. The local business tax is not assessed based on rental value or square footage, but rather on business clas - sification, gross receipts (in some jurisdictions), or a flat fee set by ordinance. Exemptions are expressly provided by statute, including exemptions (or par - tial exemptions) for certain charitable, religious and non-profit organisations, employees (as opposed to independent contractors), specified veterans and their spouses, certain low-income persons, disabled individuals, and businesses operating in designat - ed enterprise zones, which may qualify for a partial exemption if adopted by local ordinance. Businesses regulated solely at the state level and not maintaining a permanent local presence may also be exempt in limited circumstances. Each municipality and county administers and enforces this tax independently, so rates and exemptions vary by location. 8.4 Income Tax Withholding for Foreign Investors US federal tax law imposes significant income tax withholding on foreign investors in real estate. Rental income and gains from the sale of US real property are generally treated as effectively connected income, meaning they are subject to US tax withholding. When property is owned through a partnership, the partner - ship must withhold tax on income allocable to foreign partners at rates of up to 21% for foreign corporations and 37% for non-corporate investors.
Additionally, the disposition of US real estate, or inter - ests treated as US real property interests, is subject to FIRPTA withholding. The standard FIRPTA withhold - ing rate is 15% of the gross amount realised, not net gain, and the obligation to withhold typically falls on the buyer, who must remit the tax to the IRS. FIRPTA applies broadly and is intended to ensure tax collec - tion at the time of sale. There are several structuring tools that can be used to reduce or eliminate the withholdings described above. It is critical, however, to verify and implement the proper structure with counsel as early as possible. 8.5 Tax Benefits US federal tax law provides several tax benefits asso - ciated with owning income-producing real estate, with depreciation deductions being one of the most significant. Depreciation allows owners of rental and commercial property to deduct the cost of the build - ing (excluding land) over its statutory recovery period, reflecting wear and tear over time even if the property is appreciating in value. Under IRS rules, residential rental property is depreciated over 27.5 years and commercial property over 39 years, using the Modi - fied Accelerated Cost Recovery System (MACRS). In addition to depreciation, owners of income-produc - ing real estate may deduct ordinary and necessary operating expenses, including property management fees, maintenance and repairs, insurance, utilities (if paid by the owner) and professional fees related to operating the property. Mortgage interest paid on loans used to acquire, improve or refinance rental or commer - cial property is also generally deductible, as are state and local real estate taxes, subject to applicable lim - its. These deductions apply only to income-producing property and differ from personal residence rules. Beyond annual deductions, investors may also defer recognition of gain on the disposition of investment real estate by completing a like-kind exchange under IRC § 1031. A properly structured 1031 exchange allows the proceeds from the sale of qualifying real property held for investment or business use to be reinvested in other qualifying real property, with gain deferred rather than recognised, provided statutory timing and procedural requirements are satisfied.
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