Florida Trust & Probate Attorneys Blog
Virtually all states are looking to increase tax revenues and Florida is no exception. One area in which the state is becoming more aggressive is the collection of documentary stamp taxes.
As outlined in Florida Statue §201.02, this stealth tax must be considered in virtually all transfers of interests between or within Florida corporate entities, and all transfers of real estate, including real property gifts between family members. Evaluating this tax can be tricky!
Here are some examples:
1. Hank transfers a Florida beach house valued at $1 million with a $750,000 mortgage balance to a LLC that is 100% owned by him. Documentary stamps are $5,250 calculated on the mortgage balance amount. (Note: the doc stamp rate is $.70 per $100 for all Florida counties except Miami-Dade where the rate is $.60 per $100. The following rates noted are for counties other than Miami-Dade.)
2. Husband and wife own a $2 million apartment complex as tenants by the entirety with a $1.5 million mortgage; they transfer this property to their LLC, owned by them as tenants by the entirety. Documentary stamps are $10,500 calculated on the mortgage balance.
Examples #1 and #2 will surprise many people because there is no change in beneficial interest. However, evaluating documentary stamps is a two-pronged test: Prong #1: Has there been a change in beneficial interest? No. Prong #2: Has there been consideration for the exchange of the property? Yes – the mortgages are the consideration for the exchange of property. The new owner, the LLC, takes the property subject to the mortgage balance. If the properties in Examples #1 and #2 had been free of mortgages the transfers would have been free of documentary stamp taxes.
Here is another common example:
3. Dad gifts son a Florida vacation home valued at $500,000 with no mortgage. In Example #3 the transfer failed Prong #1. There is a change in beneficial interest in the transfer from father to son. This example also fails Prong #2: Has there been consideration for the exchange of the property? No- the vacation home is a gift from father to son. Unencumbered real property conveyed as a gift is not taxable since there is no consideration and there is no mortgage on the property. However, if no consideration is given but the deed recites “$10 and other valuable consideration” only the minimum tax is due.
Finally, it is important to evaluate documentary stamp taxes when transferring interests in a LLC that holds Florida real property. In the past transfers of interests in a LLC did not trigger payment of documentary stamp taxes, but recent legislation has attempted to close this loophole. It is advisable to contact a Florida attorney to assess the documentary stamp taxes on transfers of LLC interests.
In conclusion, it is important to analyze the impact of documentary stamp taxes in virtually all transfers of Florida real estate and all transfers between or within Florida entities.
We welcome your questions or comments.