If you’re a Florida landlord, you may need to pay income tax, property tax, or sales tax. Here’s an overview of those taxes, what you might have to pay, and how you can reduce your sales tax.
Income Tax
Florida has no personal income tax. You do not pay income tax if you’re a sole proprietor, partnership, S-corporation, or most LLCs.
Florida does have a 5.5% income tax on C-corporations. This includes LLCs that elect to be taxed as C-corporations.
As a refresher, C-corporations are corporations that file separate income tax returns. S-corporations are corporations that pass their income through to their owner’s tax returns with the owner paying their personal income tax rate on the net profit.
If you don’t want to pay income tax as a Florida landlord, it’s pretty usually simple. Don’t be a C-corporation.
Note that if you’re not a Florida resident, you may have to pay state taxes to your home state.
Property Tax
Florida property taxes are determined and assessed at the county level. The average property tax rate in Florida is about 0.85%. You can see tax rates by county either summarized on the Florida CFO page or by finding the website for your county’s tax collector.
Florida has strong protections against property tax increases. Under the Florida Constitution, property taxes on any non-homestead property can’t increase by more than 10% per year. This includes both commercial and residential rental properties.
Tangible Personal Property Tax
Businesses also have to pay a tangible personal property tax if they own $25,000 or more in business assets other than real estate and certain vehicles.
Florida Sales Tax
Florida charges sales tax on two types of rentals — commercial and short-term.
Sales Tax on Commercial Rentals
A commercial rental is a rental to a business. It can include offices, retail stores, warehouses, meeting rooms, and other commercial real property used for business purposes.
The state sales tax rate on commercial rentals is 5.5%. Counties have the option to impose a local surtax that usually ranges from 0% to 1%.
Agricultural properties and properties rented to non-profit organizations or governmental agencies may be exempt from sales tax.
What happens if you sublease a commercial property?
If you sublease a commercial property:
- Continue to pay the full sales tax amount to your landlord.
- Collect sales tax from your tenant based on the sublease rent amount.
- Pay the sales tax you collected to the state. You can take a credit for the amount you paid to your landlord based on the portion of the property you subleased.
Examples:
- You lease a 1,000-square-foot property for $1,000 per month. You sublease half of it to a tenant at $500 per month.
- Pay your landlord $1,000 x 5.5% = $55 in property taxes per month
- Collect $500 x 5.5% = $27.50 in property taxes per month from the sublessee
- Take a sales tax credit of 500 square feet divided by 1,000 square feet = 50% of the $55 you paid to your landlord = $27.50 per month.
- Pay the state $27.50 collected minus $27.50 credit = $0 per month
- You lease a 1,000-square-foot property for $1,000 per month. You sublease half of it to a tenant at $1,000 per month.
- Pay your landlord $1,000 x 5.5% = $55 in property taxes per month
- Collect $1,000 x 5.5% = $55 in property taxes per month from the sublessee
- Take a sales tax credit of 500 square feet divided by 1,000 square feet = 50% of the $55 you paid to your landlord = $27.50 per month.
- Pay the state $55 collected minus $27.50 credit = $27.50 per month
As you can see from the second example, if you are profiting from a sublease, you must pay additional sales tax to the state.
Sales tax is not fixed based on the original lease. It can’t be split between a lessee and sublessee like you might agree to split utility bills or other expenses. Each party that rents a commercial property owes sales tax based on the amount they’re charging.
Is a tenant liable to the state for unpaid sales taxes?
The Florida Department of Revenue can take direct collection action against a tenant who does not pay sales tax to their landlord. If the landlord fails to pay sales tax collected from the tenant, only the landlord is liable.
Sales Tax on Short-Term Rentals (Lodging Tax Rate)
State and local sales taxes apply to short-term or transient rentals. The rate is the standard Florida sales tax rate that applies to purchases.
Counties can and generally do impose an additional Local Option Transient Rental Tax. This is effectively an additional sales tax on short-term rentals. The additional rates range from 2% to 7%. That puts total sales taxes on short-term rentals at around 6% to 14%.
What counts as a short-term or transient rental?
A short-term or transient rental is a rental period of six months or less. It includes rentals of:
- Hotel and motel rooms
- Condos
- Timeshares
- Single-family homes
- Apartments
- Mobile homes
- Campground sites
- RV parks
Rentals to full-time students are exempt if the student provides the landlord a written statement from the institution confirming their full-time enrollment. Military personnel under short-term orders are also exempt with documentation issued by the military.
A bona fide lease for more than six months that is broken early is not subject to sales tax.
When are sales tax payments due?
Sales tax payments are due monthly, quarterly, twice per year, or annually depending on the total amount of sales tax you collect. See the Florida Sales Tax Guide for more information.
Frequently Asked Questions About Florida Rental Property Taxes
Here are some frequently asked questions about Florida rental property taxes.
Can landlords deduct rental property taxes on their federal income tax return?
Yes, you can generally deduct state taxes on your federal income tax return. This would usually be a deduction on the Schedule C or Schedule E for your rental property rather than a personal itemized deduction.
Do I need to form an LLC?
You do not need to form an LLC for tax purposes. You can register with the tax authorities as an individual.
There is generally no tax benefit to forming an LLC taxed as a sole proprietorship or partnership. Florida charges a $138.75 annual fee to do business as an LLC.
You may want to form an LLC for legal liability protection. In some cases, this may be unnecessary as insurance may give you enough protection. Ask an attorney to find out if an LLC would be helpful in your situation.
Will out of state landlords owe state income taxes on Florida rental properties?
Income tax rules vary by state. Some states will tax your rental property income even if you earn it in another state.
Does Florida have a transient occupancy tax?
Florida doesn’t have a tax called Transient Occupancy Tax like San Diego or other cities. Florida’s equivalent would be the sales tax and transient rental tax.
Do you have to fill out a tax return for real estate taxes?
You don’t have to file a specific property tax return. You may need to contact your local tax collector to update your information (such as where to send your property tax bill) or to apply for any property tax benefits you may be eligible for.