In Florida, there are two benefits which residents receive that can impact on non-residents. The first is the HOMESTEAD EXEMPTION. In early times, to encourage northerners to settle in Florida, a law was passed which exempted the first $5,000 of assessment on a residential property from municipal taxation. This sum was increased over time, and now the exemption is $25,000, but it is only for property owned by a person who is resident in Florida. In immigration terms, the owner must be either a United States citizen, or possess lawful permanent resident status. Persons who are in the United States on a temporary basis, even though holding a visa of some type, are not eligible.

The second benefit for residents is the "SAVE OUR HOMES" amendment to the Florida Constitution. Amendment 10 is a state constitutional amendment that applies to homestead-exempt property. This amendment limits annual increases in assessed value of homestead property to no more than three per cent, or the change in the consumer price index, whichever is less. This continues so long as the Florida resident owns the property, and applies each year.

However, if the property changes hands to either a resident or non-resident in the first year of new ownership, the assessment on the property goes to current market value, with appropriate taxes. If the new owner is entitled to the homestead exemption, an application would have to be made for same, and the exemptions will apply to the new assessment.

Therefore, in buying a property, one must be aware of these implications when considering what the taxes will be for the new owner. If the property was entitled to the exemption, the taxes in the new year may be considerably higher than what had been payable in the previous year.

Sale of a real estate interest involves federal tax considerations in Florida. Any gain is taxable, although if a property was purchased prior to November of 1984, the value in November 1984 is the starting value no matter what was paid for the property at the time of purchase. In calculating the gain, such items as the costs in acquiring the property, costs of sale of the property, costs of improvements, special assessments and taxes in the year of sale are deductible. At present, the maximum rate of taxation of the gain is 15 per cent, although with exemptions on the tax form the rate of taxation comes out at about 12 per cent.

To make sure that the United States government is paid the tax owing, a scheme of collection has been devised. Generally (there is a procedure available to predetermine the tax and have to pay only the actual tax owing), 10 per cent of the sale price is deducted by the title company at the time of the closing of the sale and is forwarded to the federal government. The law imposes an obligation on any party involved in the sale, including the seller, real estate agent, or title company to make sure that the sum is forwarded within 20 days of the closing. If not, those persons are liable for the money. The procedure required to avoid the withholding is very complicated, involving the furnishing of all pertinent information to the government and waiting for a determination. In most cases, it is not convenient as the sale needs to be closed and waiting for the exemption certificate can take some time.

After the sale has closed, application can be made for a refund of the overpayment if the 10 per cent withheld is more than the actual tax owing. Two procedures are available: to apply immediately, forwarding all pertinent information to the tax authorities and making the calculation; or to wait for the end of the year and make application by filing a non-resident tax return, the 1040NR. The latter procedure is easier, as one only has to report the bare figures on the 1040NR, whereas the other procedure requires all documentation to justify the figures.