Homestead Exemption in Florida

Any natural person can apply for the Florida homestead exemption as long as the person is a permanent Florida resident, and the homestead property is his/her primary place of residence.

A homestead exemption of up to $50,000 is available to every person who has legal and equitable title to real property in the State of Florida and resides thereon and in good faith makes it his or her permanent home. This saves approximately $750 per year in property taxes, and the properties assess value cannot increase more than 3 percent annually once a homestead exemption is granted. As noted earlier, a natural person does not include corporations, limited liability companies, irrevocable trusts, or partnerships and as such, property held by those entities cannot qualify for homestead.

The Foreign Investment in Real Property Tax requires foreign persons to pay U.S. Income Tax on the gains they make when they sell U.S. real estate. Closing agents will be required to hold back 15 percent of the gross sales price when a foreign national is the seller of the real estate.

The FIRPTA tax is actually a tax that the buyer is required to pay if the tax is not withheld from the seller’s proceeds and remitted to the IRS within 20 days of closing. So it is the buyer’s responsibility to ensure that 1) the seller is not a non-resident alien of the United States, and 2) if he is, then direct the closing agent to withhold and remit the proper amount of tax to the IRS.

There are exceptions to the withholding, but we have always advised buyers to not assume the risk of not paying the seller’s FIRPTA tax based on the exceptions. Instead, it is advisable to always pay the tax and let the seller apply for a refund on their own.

Similar to FIRPTA withholding, O.C.G.A. Section 48-7-128 provides for Georgia income tax withholding at a rate of 3 percent on sales or transfers of real property and associated tangible personal property by nonresidents of Georgia. The buyer withholds Georgia income tax from the payment to the seller. The buyer is responsible for providing the seller with a withholding tax statement, which the seller attaches to his Georgia income tax return, claiming credit for the withholding on the appropriate line of the tax return.

Nonresident withholding is not an issue at the State level for Florida as Florida is one of seven states that do not levy income taxes on individuals (other states include Alaska, Nevada, South Dakota, Tennessee, Texas, and Wyoming. Two others, New Hampshire and Washington, impose taxes only on certain types of income).