Florida Property Taxes - Reduce Them, Or Your Capital Gains Tax, With These Strategies

If you decide to relocate to Florida, you'll have property taxes just as in any other state. The good news is that Florida property taxes are very reasonable. The median home value in Florida is $189,500. The average property tax is $1,495, which means Florida has the 22nd highest average tax amount in a comparison of all 50 states. As a percentage of a home's value, Florida property taxes are approximately .79% of the home's value (28th highest out of 50).

Florida property taxes as a percentage of a person's income are slightly higher, measuring an average of 2.95% and putting Florida at the 19th highest position in this measurement. So from these statistics, you will likely find that the dollar amount of your Florida property taxes and the percentage of your home's value that the taxes represent will be similar to or lower than what you pay now. However, if you were earning a salary in Florida, you'd find your property taxes might represent a higher percentage of your annual income than you were paying in your old state.

However, there are two strategies you can use to reduce the amount of tax that you will have to pay. One will reduce your annual property tax, and one will allow you to reduce the tax you will pay on the sale of your home. Unfortunately, only one or the other will apply at the same time.

First, there is the Florida homestead exemption that is applied to a home that is your permanent and full-time residence. In other words, it's not just your vacation home.

If you do have a vacation home in Florida, you will have to pay full Florida property taxes. However, there has been an interesting change in the IRS laws regarding 1031 exchanges, more commonly referred to as the 'swapping' of investment property. Under the IRS laws, an investment or business property can be sold and the proceeds will be tax-free if they are reinvested in a 'like-kind' property. However, this meant that homeowners were not allowed to use their own property as a vacation home without risking that it would be considered 'mixed-use' (taxable) rather than an investment property.

With the changes in the law, there is now a 'safe harbor' for these sales that so that you can enjoy your vacation home in Florida and eventually sell it at a higher value, then roll the proceeds into another home in a tax-deferred sale. The advantage is two-fold; you get to rent the home for the majority of the year, earning income to pay the mortgage. And you get to enjoy the home yourself without losing your earnings to taxation at the time of sale. In order to avoid taxation on the gains as personal income, you need to do the following:

· Purchase the home and keep it for a minimum of 24 months
· For each of the 12 month periods you own it, you must rent it out for at least 14 days of the year at market value
· Stay in it yourself no more than 14 days or 10% of the time you rented it out, whichever is greater.

Remember to always consult your accountant or tax attorney before making a 1031 exchange. The rules can change quickly, and you don't want to act under a false assumption.

Strategies to Avoid Paying Capital Gains Taxes

A successful self directed investor which has made gains during the year should strategically plan against paying capital gains taxes. Understanding the mechanics of the capital gains tax itself is very important. Following is the way capital gains tax is calculated and what my policy is to keep the share that the tax man is supposed to get. 
 
Capital gains is the difference between the book value and the market value at the time you have disposed of an asset. For example, if you paid $10.00 per share and you purchased 1000 shares the book value would be $10,000.00. If the share value increases to $15.00 per share and you sell your 1000 share position, the (market value) or sale price is $15,000.00. Using these values, your capital gain would be the increase in value between the $10,000.00 purchase price and the sale price of $15,000.00 which is $5,000.00. The capital gain tax applies in the following manner, the first half of the gain ($2,500.00) is free of taxation and the capital gain tax is payable on the ($2,500.00) remaining half. The actual amount payable is figured according to your present income bracket for that calendar year.
 
Now this is how I save paying tax on the remaining $2,500.00. I immediately transfer the funds into my retirement savings plan (RSP) and defer the tax until retirement. Now I not only get to keep the full $5,000.00 but I have generated a tax deferral at tax time. I may have even generated a tax refund when filing my income tax return. Depending on how much time the funds remain in my RSP it may multiply over and over again.
 
There are many ways to defer paying capital gains taxes but this is just one of my strategies. Plan ahead and generate a larger RSP portfolio and pay less tax.

Tax Saving Strategies For Capital Gains on Rental Property

Have you recently sold any of your rental property? Are the taxes on your capital gains are a burden for you? Are you looking for some way out to reduce these taxes and keep most of the profits you made from this transaction?

Then you need to know some intricacies of capital gains tax rules.

If you had purchased rental property at a lower price and now sold it with a respectable margin on it, this difference you could get is the capital gain and the same is taxable.

Remember, IRS gives preference to home owners. An average home owner will be charged leniently as compared to a property investor. So the capital gains tax varies as per different types on property owners.

One good thing about the capital gains tax is that it is lower than the income tax. It is convenient if you buy the property and wait for one year before you sell it. This way you will have to pay taxes at an average rate of 10 to 25 %. But if you plan to sell your rental property before one year, then your earning is considered as short term capital gains and you have to pay heavy taxes on it which may be same as the ordinary income tax.

If you have your rental property overseas, you need to check the capital gains taxes rules over there. As in some countries like United Kingdom to encourage foreign investors, they do not charge any tax from them for their capital gains.

Some useful tips for saving on this tax:

You can avail the benefits on tax savings by becoming a home owner than a property investor.

To qualify to the criteria of home owner, you have to stay in your rental property for a minimum of 2 years. You may have rented it in past  but then you have to stay in it for two years out of five years block before you sell off. Then it will be considered as your own home for tax purposes.

If you are a married couple selling your own home, the profit of first $500,000 is not taxable as against a sole owner who is eligible for tax exemption on the first $ 250,000.

If your sale is just a rollover, you may be charged absolutely nothing towards your capital gains. So you are selling your rental property only to purchase a new property of that type, it will be a rollover.

This rollover refers to section 1031 of the internal revenue code. To satisfy the clauses of this section you have to finalize on a new property within 45 days of the sale and the deal has to be completed within 6 months.

Remember, selling your rental property in cash emergencies is not a good idea. Then it is difficult to reduce the liability on capital gains. And this is the reason why I advise property owners to put aside some of your funds for emergencies such as major repairs.

Tax Saving Strategies with Stock Trading

If you trade in stocks, you need to have tax savings strategies in place, or come April 15, your profits will look a lot smaller after the IRS has taken its share.

However, the good news is that there are certain tax savings strategies with stock trading that you can implement to reduce your taxes.

Although we use investor and trader as we please, in the world of taxes these to words have different meanings and your taxes will be affected according to the meaning you put. Therefore, it is better to understand how the IRS views a trader and an investor so that you can benefit from it.

If you spend you days buying and selling stocks, then you are trader. If you are a trader, you save yourself a lot of money when it comes to paying taxes. As a trader, you can deduct all your investing expenses from your tax returns. These expenses can be newsletter subscription, home office and computer equipment.

Now how can you decide whether you are a trader or an investor? There is no guideline laid out to distinguish between a trader and an investor other than the several court cases. According to these court cases, you are a trader if you spend a lot of time trading and you do not have a regular full time job. But you can also be part time trader but you would have to buy and sell stocks on a daily basis. In addition, you are a trader if you have established a regular and continuous pattern for trades, and you ultimate aim is to profit from short-term market swings rather than keeping stocks for long-term gains.

However, you can be both a trader and investor. But you should separate your long-term investments from your short-term investments so that you are not caught by IRS for cheating.

From the IRS's perspective, a trader is self-employed and you can deduct all your expenses on Schedule C. Write offs in Schedule C reduces your adjusted gross income and you can fully deduct your personal exemptions While an investor has to account for all his expenses on Schedule A, and they can only write off the amount that exceeds 2 percent of the adjusted gross income.

In addition, as a trader you can deduct margin account interest on Schedule C and take an immediate write off of up to $128,000 for 2008 and $125,000 for 2007 for equipment you used in your trading activities for more than fifty percent of the time. Plus, you will not have to pay self-employment tax on your net profit because capital gains are exempt from it.