A 1031 exchange is a tax strategy that allows you to defer paying capital gains taxes when you sell an investment property, as long as you reinvest the proceeds into a new, like-kind property. This means you can sell one property and buy another similar one without immediately paying taxes on any gains from the sale.
These like-kind exchanges are covered under Section 1031 of the Internal Revenue Code (hence the name "1031 Exchanges") and apply to federal capital gains taxes. However, each state has their own tax code, and may have different rules for real estate tax withholdings, the ability to complete a tax-deferred sale, or the rules around like-kind exchanges. Below we'll dive deep into these state-level specifics.
Most investors in Florida are not subject to a tax withholding when selling real estate. One major caveat to this is that foreign investors will still be subject to federal tax withholding under FIRPTA, which is subject to 15% of the sale proceeds.
Florida does not have state or local capital gains taxes. The Combined Rate accounts for the Federal capital gains rate, the 3.8 percent Surtax on capital gains, and the marginal effect of Pease Limitations on itemized deductions, which increases the tax rate by 1.18 percent.
Florida does not have a state income tax.
Unsurprisingly, Florida doesn't add additional rules or regulations for 1031 exchanges. There isn't anything particularly unique about conducting a 1031 exchange in Florida compared to other states in terms of the federal tax code. Whether you're exchanging a property in Florida or in another state, the fundamental requirements remain the same: the properties involved must be held for productive use in a trade or business or for investment, and they must be of like-kind.
Many states recognize and follow the federal rules for a qualifying 1031 exchange. We recommending reviewing these resources for 1031 exchanges at the federal level - learn about the rules for an exchange, the key deadlines you must meet, and why you are required to work with a Qualified Intermediary like Deferred.com.
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