Two Legislative Changes to Pay Attention to

By: Matt O’Kane

Here’s how the recent legislative changes will affect you:

Spousal Homestead Transfer

A new law signed by Governor DeSantis extends the documentary stamp tax exemption for the conveyance of homestead property between spouses. As background, the State of Florida imposes documentary stamp tax of seventy cents per $100 of consideration. Consideration includes, among other things, mortgage obligations or other liens. Prior to last year, the conveyance of homestead property from one spouse to another spouse, or any interest therein, was subject to documentary stamp tax if the homestead property was encumbered by debt. Thus, if homestead property was held in the name of one spouse and was encumbered by $100,000 mortgage, the transfer of a one-half interest of the property to the other spouse would be subject to documentary stamp in the amount of $350. Last year, a new exemption eliminated the documentary tax expense, if the deed or other instrument was recorded within one year after the date of marriage and the only consideration for the transfer or conveyance is the amount of a mortgage or other lien encumbering the homestead property at the time of the conveyance. The new exemption extends the exemption by eliminating the one year requirement. The revised exemption goes into effect July 1, 2019.

Sales tax on Commercial Rental Fees

For the third year in a row, the sales tax rate on commercial leases has been reduced. Beginning of January 1, 2020, the State of Florida’s sales tax on rental payments for the lease of commercial real property will be reduced from 5.7% to 5.5% for rental payments received for occupancy periods beginning on or after January 1, 2020. Commercial landlords and management companies sending out invoices for occupancy periods beginning on or after January 1, 2020 should revise their invoice software to account for this sales tax reduction. Note that this sales tax reduction does not impact the local discretionary sales surtax imposed by many Florida counties.

Bad Boy Guarantee Makes Loan Recourse?

Magnifying Glass and TaxBy:  Amanda Wilson

The IRS recently released IRS legal memorandum 201606027.  In this memorandum, the IRS considered the impact of a bad boy guarantee on allocating partnership liabilities under Section 752.  Traditionally, bad boy guarantees have not been viewed as resulting in a partnership liability being allocated to the guarantor, as the guarantee obligation has been viewed as subject to contingencies that make it unlikely that the guarantee would ever come into play.

However, the IRS disagreed in this memorandum, and determined that the liability should be treated as recourse as the guarantor should be treated as bearing the economic risk of loss for the liability as a result of the bad boy guarantee.  This memorandum is creating a fire storm in the real estate area, as it potentially means that  billions of dollars of liabilities may have been incorrectly allocated.


Considering a Future Like-Kind Exchange of Real Property?

By:  Amanda Wilson

If you are considering a future like-kind exchange of real property, proceed with caution.

The tax code allows taxpayers to exchange property that they hold for investment or use in business for property of a like-kind without having to recognize the tax gain on the exchange.  The gain is instead deferred until the taxpayers dispose of their replacement property.  While like-kind exchanges are a popular tax planning tool, they have become the target of proposals aimed at raising tax revenues.  Most recently, the Obama Administration has proposed limiting the amount of capital gain that can be deferred from a like-kind exchange of real property to $1 million per taxpayer per tax year.  If this proposal is enacted into law, it is expected to apply to like-kind exchanges completed after December 31, 2014.  So, if a like-kind exchange of real property is on the horizon for you, be wary and consider acting sooner rather than later.

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