When you’re ready to move forward with your next luxury real estate investment, it’s important to be armed with as much information as possible before you take action.  Choosing your next luxury home purchase can be intimidating because they often come with hefty taxes and rules that may seem complicated if you’re not a tax professional. Despite the fact that Florida does not have a state income tax, there are still real estate taxes that must be considered when moving forward with making a luxury real estate investment.  In order to help you make the best, informed decision, I’ve assembled seven tips that will make dealing with taxes a breeze.

1.Estimate Your Taxes

Planning ahead is the best thing that you can do when preparing to make a large financial investment. The Estero Fire Department created an excellent handout that explains how taxes work in Florida. Here’s the formula that they provide for estimating your real estate taxes:

Just Value (market value) – Assessment Limitations (e.g. Save Our Homes) = “Assessed Value” Assessed Value – Applicable Exemptions (e.g. Homestead) = “Taxable Value”

Taxable Value X Millage Rate = Total Tax Liability

It may be wise to estimate your market value (aka just value) on the higher end of the spectrum so that you are financially prepared to invest in your next luxury home.

2. Homestead Exemptions

Florida is unique because it offers the “Save Our Homes” assessment limitation, which means that taxes on your primary residence (homestead) cannot increase by more than 3% or the percent change of the Consumer Price Index (whichever is less). Essentially, the assessment limitations prevent your taxes from increasing in the event that your assessed value increases to more than the just value of your home. It’s important to note that if you’re moving within the state of Florida, you may be able to transfer your existing homestead exemption to your new home. The portability forms can be conveniently completed online through the tax assessor’s website.

However, keep in mind that in the event that you don’t plan on your next luxury home purchase to be your primary residence, or if you intend to rent out your home seasonally, you may risk your homestead exemption. Past court cases have shown that merely having a couple locked closets will not negate the “abandonment through rental” clause, which eliminates the homestead exemption. Be sure to consult your attorney and/or real estate professional if you intend to pursue the homestead exemption on a property you may rent out, as you may lose your homestead exemption. The good thing is that if you lose your homestead exemption, taxes in Florida for non-homestead properties are still capped at 10%.

3. Get an Appraisal & a Home Inspection

Because the property assessor’s office doesn’t always complete individual appraisals, you would be wise to get an appraisal to see the true value of your home. Assessors combine the value of comparable properties, consideration of costs (e.g. how much it would cost to replace your property), and potential income of the property to determine the market value. The market value is not always the true 100% value of your property, so keep this in mind when estimating your taxes. Furthermore, if you have proof to show that what the property you’re interested doesn’t match the assessor’s appraisal, you may be able to contest the assessed value. You should also make sure that you get a full home inspection. Just because your next home or real estate investment may be part of a highrise or within a community does not mean it is exempt from problems. Protect

yourself and your finances.

4. Don’t Overspend

When you’re looking at making a luxury real estate investment, it can be tempting to pull out the stops. After all, your intention is to get luxury, so why would you hold back? One answer is simple: you can’t afford it. While it can be tempting to get every upgrade imaginable or engage in a bidding war (where it is very easy to lose sight of the initial financial plan you made), you don’t want to get yourself in a situation where you’re in over your head. The higher the value of a property, the higher the taxes will be. Establish a financial plan and follow it. You’ll be happier in the long run.

5. Be Prepared: Anonymity Might Be a Thing of the Past

Many wealthy individuals who are able to pay cash for a home — even a luxury home — prefer to do so to maintain their privacy. You may have even considered buying the home under a corporation or business venture’s name. However, due to the influx of shady real estate transactions over the last few years, specifically in Miami-Dade County, the federal government has imposed new policies to combat the issue. According to a recent article in The Miami-Herald, “The new policy will require title insurance companies to identify the true owners of shell companies that pay $1 million or more in cash for homes in Miami-Dade and $3 million or more for homes in New York City. Insurers will then have to report the names of the buyers to the U.S. Treasury Department.” Although this new policy relates specifically to homes in Miami-Dade and New York City, it’s important to stay abreast of changing policies that could potentially proliferate into surrounding areas of luxury real estate in south Florida.

6. Capital Gain is Your Gain

Whether you’re buying a vacation home or downsizing, if you’ve sold a property in order to invest in luxury real estate, you may end up with a profit. If you do, be aware that you are not required to pay capital gains tax for the first $250,000 in profit for single individuals and $500,000 in profit for married couples who will file a joint tax return. Keep in mind, it is required that you lived in that home for two years in order to bypass the tax. With that said, you may end up with a decent amount of money available to put towards your next real estate investment.

7. Get Qualified Help

Taxes aren’t always that easy to understand. Do your research when hiring a tax professional/accountant to help you create your financial plan to make sure that they are licensed professionals. And when you’re ready, make sure you hire a real estate agent you can trust. You need them to be upfront, honest, and in it for your best interests — not just the commission. If you need a professional accountant or consultant to assist, as a realtor in The Colony, I have the connections and recommendations to do just that.

The Colony in Bonita Springs: Your Next Luxury Residences

As a realtor and resident of The Colony in Bonita Springs, Florida, I can confidently say that an investment in a residence here is a wise decision. The Colony offers an array of amenities, including a kayak/canoe park, state-of-the-art fitness center, championship golf course, and more. When you purchase a residence here, you will have more than just a luxury home; you will have a lifestyle some only dream of.

To learn more about available homes in The Colony, contact Jill Kushner today at (239) 691-5505 or click here.

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