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I am not a Certified Public Accountant (C.P.A.), nor do I recommend that you act upon the advice of anyone but a C.P.A. in reference to your personal tax situation. In this chapter, I will attempt to give you a simple, general overview of the taxes that you will encounter when you purchase an income producing vacation home. It is important that you receive good tax guidance in order to avoid overpayment or penalties. If you are a non-U.S. resident purchaser, your real estate broker or agent should be able to recommend a firm that works with international clients. Non-U.S. residents may encounter laws that are specific to their status and filing situation. Because every taxpayer's circumstances, and the forms required for their return, are different, I will refrain from mentioning form identification numbers. Also, the following information is based on the current tax laws at the time of this writing, which are subject to change.

If you are a U.S. resident, you are probably aware of the fact that the income generated and deductions, whether it is for one, or multiple income producing properties, must be reported to the Internal Revenue Service on your annual U.S. income tax return. Essentially, the same is true for a non-U.S. resident alien, but an additional form will probably be necessary to claim an exemption from withholding of United States income tax through the net basis election.
Unlike U.S. residents, married non-residents cannot file a joint return (file together as one) if the property is jointly owned. Although this has little overall effect on the tax liability, it does increase the cost to prepare two returns if you are paying a C.P.A. for services.

The income tax rate that is paid has ranged from 15% to 39.1% based on income. Deductions that may be claimed include, but are not limited to, repairs, supplies, utilities, advertising, cleaning, maintenance, commissions, mortgage interest, property taxes, tax return preparation fees, management fees, insurance, and depreciation. Larger expenses, such as a pool heater, furniture, and some large repairs, are usually capitalized to be depreciated over future years. Your C.P.A. will instruct you on the appropriate deduction period, from five to 27.5 years, to use for each specific item. There may be limitations on certain expense deductions depending on how often you use your home.

Can you deduct your travel expenses when you visit your property? The answer is yes, if the trip is primarily for business purposes. Only the expenses directly related to your rental property can be deducted. The airfare and certain travel related expenses, such as, but not limited to, car rental, local transportation to and from meetings with property management, as well as business meals, might be deductible.

Can you receive a deduction or credit for taxes that you pay in your home country on your U.S. tax return? Sorry, but no. If there were a worldwide income tax return then it might be different.

Although there is no Florida state income tax, real property taxes are calculated by the county tax authorities. Values are assessed annually and the assessment notice will be sent to you (or your mortgage holder if your taxes are deposited monthly with them) in November. Either you or your mortgage holder is then required to submit the payment.

If your home is to be rented for periods of time less than six months, you will be required to pay sales tax to the State of Florida, Department of Revenue, on transient rentals. Additionally, a tourist development tax must be paid monthly to the county in which your property is located. Sales tax and tourist development tax must be collected on all rental income from properties located in Florida regardless of where the rent is collected. Properties rented for periods longer than six months are not subject to these taxes.

Additionally, a Tangible Personal Property tax return, that details any personal property contained in, but not attached to, the rental house, is required to be filed annually with the county in which the home is located.

The last tax you may pay on your vacation property will be a capital gains tax for any realized profit on the eventual sale. Again, your C.P.A. or tax consultant will advise you of any options that could save you money.

©2007 Vacation Capital Real Estate, Inc.


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Revised: August 3, 2007
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