If you are a real estate investor, you probably have one question in your mind at all times: where would my business thrive most?
Well, we all have been there. It’s a part of every investor’s journey to find the most profitable location that makes their business successful and their money worth it.
Sure, it’s a very complicated task to gain enough experience and knowledge to look for the most valuable places to invest in. But it’s not impossible. And we don’t want you to make the same mistakes that a lot of people did when they were achieving that task.
If you don’t already know this: the answer to your question is Florida. The Sunshine State has been a long-standing favorite for real estate enthusiasts and investors. And why wouldn’t it be? It has everything that promises a more than sustainable and adventurous lifestyle with a lot of money to save.
Not only it’s a tax-friendly state – that attracts a whole lot of retired folks from around the nation – but it’s also a peninsula with booming coastlines that invites millions of tourists every year. On top of that, its economy is thriving, which makes it a perfect hub of employment and business endeavors, attracting a lot of people in search of jobs and business settlements.
These and a lot more reasons make Florida a perfect real estate investment, but the advantage that shines the most is the fact that there are a lot of tax benefits in Florida. And that is exactly what this article is about.
Read below some amazing tax gains you get when you invest in Florida’s booming real estate market.
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1. No individual income tax
The reason why Florida is one of the most opportunistic and lucrative locations for real estate investors is that it dropped individual income taxes in 2019. After that, people from all over the country were moving to Florida to conduct their businesses. Florida was one of the seven states to make that decision, including Wyoming, Washington, South Dakota, Texas, and Alaska.
It suggests that Florida has a lower overall income tax than most of the US states. If you are a real estate investor, you probably have a very good chance to milk that provision to your benefit.
However, there is one thing you should know: having “no income tax” sounds very good to hear, but there are risks involved with it.
If you live in any other state with your businesses entity set in Florida, your state government could hold you liable to pay tax for revenue that’s generated outside of your living state (Florida in this case).
At that point, you won’t be paying income tax to Florida but you will have to pay it to your living state. It wouldn’t matter that your business is based in Florida.
2. No tax on sole proprietorship businesses
One of the reasons why Florida is a much more profitable state than any other is the fact that it charges no state income or any distinctive tax on sole proprietorship businesses.
A business institution legally owned by a single individual is called sole proprietorship – and there are no corporate or business taxes on such kinds of businesses in Florida. Moreover, since there is no income tax, you can easily make a fortune out of your real estate investments.
3. No tax on partnership businesses
A business legally owned by more than a single individual is a partnership business. Similar to sole proprietorship, Florida’s government does not require partnership businesses in Florida to pay any distinct taxes.
And that is a very appreciable benefit because most states in the US do require partnership businesses to pay taxes from their generated revenues.
Due to this ease of investment, you can invest your money in partnership businesses as well without paying any tax, not even basic state income tax.
4. Use LLC to avoid income tax
LLC (Limited Liability Company) is another potential way to avoid income tax. However, the LLC needs a proper setup in order for this to work. LLC can be taxed by the state because it aligns with Florida's corporate standards.
If you are the sole owner of the LLC, it will be a “disregarded entity;” thus, you won’t be liable to pay income tax.
However, if you are living in a different state while your LLC is operating in Florida, you will need a "resident agent" to reside in Florida to look after your company. This will make your LLC a partnership business, and you don't have to pay tax for a partnership business in Florida.
5. The Opportunity Zones
The Tax Cuts and Jobs Act of 2017 in Florida established the Opportunity Zone (OZ) incentive to motivate long-term investments in the state. If you are a real estate investor, investing in an OZ can help you save taxes.
In 2019, more than 400 opportunity zones were designated in the state, including Miami-Dade County, Palm Beach County, Orange County, Volusia County, and Lake County.
(The names of all the counties and cities can be found at the Florida Department of Economic Opportunity).
A report showed that after the opportunity zones were designated, the real estate market of Minneola started to thrive. Minneola is a city in Florida’s Lake County with a population of approximately 9,500 as per the 2010 census. Check out Minneola FL Realty to know about profitable real estate opportunities in Minneola.
Other Benefits
Although tax benefits are the reason why Florida's real estate market is continuously improving, there are a lot of other benefits too that deserve recognition, such as a stable rental base and a stable housing market.
The increasing amounts of retired folk searching for a place to rent is a golden opportunity for realtors in Florida. That is because retired people have a regular income, which makes them stay longer than younger tenants. And it's a fact that they will treat your property better than a youngster in Florida.
