What is Intangible Tax on a Mortgage in Florida?

In the world of buying homes and securing loans, there's a less-known factor that can affect your wallet: the intangible tax on mortgages in Florida. Even though it might not seem like a big deal, this type of tax has a real impact on your finances when you're dealing with property. In this article, we're here to break down the basics and give you a clear picture of what this tax is all about, why it's around, and how it plays into your mortgage journey. From understanding what intangible assets are to figuring out why Florida asks for this tax, we're here to simplify the whole process. Plus, we'll dive into ways you can save money through exemptions and smart decisions. So, whether you're dreaming of owning a home or you're a business owner in need of a property, this guide aims to make the intangible tax tangible and understandable for everyone in the Sunshine State.

What is an intangible tax on a mortgage in Florida and why is it imposed?

Intangible tax on mortgages in Florida is a state-level levy applied to intangible assets like loans and promissory notes. Unlike tangible assets, which are physical, intangible assets hold value without a physical presence. When securing a mortgage in Florida for property purchase or refinancing, you'll encounter this tax, calculated as a percentage of the mortgage amount. Its primary purpose is to generate revenue for Florida, funding various state services and programs.

In essence, the intangible tax on Florida mortgages is a unique financial aspect with a real impact on property transactions and state revenue. This tax plays a significant role in real estate deals, and understanding it is essential for anyone navigating Florida's real estate market.

Who pays the intangible tax and how much does it cost?

According to the Florida Department of Revenue, the taxpayer for the intangible tax on mortgages in Florida is technically the lender. However, in practice, it's customary for lenders to transfer this tax obligation to the borrower as part of the closing costs when securing a mortgage for property purchase or refinancing.

The cost of the intangible tax is determined by a relatively straightforward calculation. It's typically set at 0.2% of the total mortgage amount or $2 for every $1,000 of the mortgage's value. To put it in perspective, if you're securing a mortgage for $100,000, your intangible tax liability would be $200. Importantly, this tax is a one-time payment—unlike annual property taxes—paid at the loan closing.

Exemptions and Special Cases

There are exceptions and special cases that can significantly affect your tax liability when it comes to intangible tax on Florida mortgages. Understanding these exemptions can be crucial for making informed financial decisions in your real estate journey.

Types of Exemptions

• Government Agency Loans, Industrial Loans, and Aircraft Liens: Certain types of mortgage transactions are exempt from the intangible tax. This includes loans provided by government agencies, mortgages associated with industrial purposes, and those secured by a lien on aircraft. These exemptions offer financial relief to borrowers engaged in specific types of transactions.
• Refinancing with the Same Lender: If you're refinancing your mortgage with the same lender and your obligation remains unchanged, you may qualify for an exemption. This exemption acknowledges the continuity of the financial agreement with the same lender and offers potential savings on the intangible tax.
• VA Home Loan Certificate Holders: Veterans holding a VA home loan certificate of eligibility can be exempt from the intangible tax. This exemption recognizes and supports veterans by reducing their tax burden during real estate transactions.

Agricultural Land Exemption

• Mortgages for Agricultural Land Improvement, Development, or Benefit: Mortgages primarily aimed at improving, developing, or benefiting agricultural lands in accordance with Florida statutes may qualify for an exemption from the intangible tax. This exemption reflects the state's commitment to fostering its agricultural sector while addressing the unique financial considerations tied to these property transactions. To ensure compliance and eligibility for this exemption, it's advisable to seek guidance from experts in real estate taxation or legal matters.

Tips for Minimizing Intangible Tax Liability on Mortgages in Florida:

1. Research Exemptions:

• Delve into your county's specific exemption criteria to understand potential opportunities for reducing your intangible tax liability.
• Explore exemptions tailored to first-time homebuyers and specific refinancing scenarios that might apply to your situation.
• Consider "no intangible tax" loans offered by certain financial institutions, such as Community First's Commercial Real Estate Loans, where business owners are exempt from paying any intangible taxes.

2. Opt for Smaller Loans:

• Consider taking out a smaller mortgage, as the intangible tax is calculated as a percentage of the loan amount. Smaller loans equate to lower tax liabilities.

3. Strategic Refinancing:

• When refinancing, explore options that allow you to maintain the same lender. This continuity can potentially result in an exemption from the intangible tax.

4. Joint Ownership Benefits:

• In some cases, sharing property ownership with family members through joint ownership arrangements can reduce your tax liabilities due to potential exemptions.

5. Professional Guidance:

• Consult with tax experts or financial advisors well-versed in real estate transactions. They can provide personalized advice on legally optimizing your tax situation and navigating exemptions.

6. Exploit Deductions:

• Investigate deductible mortgage-related expenses. While the intangible tax itself isn't directly deductible, certain expenses related to your mortgage may be. A tax professional can help you identify these potential deductions.

7. Time Transactions Wisely:

• Plan the timing of your mortgage transactions strategically. Consider when to initiate the process to minimize the impact of the intangible tax. Stay informed about potential changes in tax rates or regulations that could affect your tax liability.

8. Budget for Tax:

• Incorporate the intangible tax into your budget for closing costs when preparing for a mortgage transaction. This foresight ensures you're financially prepared and won't be caught off guard.

9. Align with Financial Goals:

• Evaluate your long-term financial objectives and ensure that your tax strategies align with these goals. While minimizing tax liability is important, it's equally crucial that your financial decisions support your broader financial aspirations.

By following these tips, you can navigate the intricacies of intangible tax on mortgages in Florida with confidence and potentially reduce your tax liability, ultimately supporting your financial well-being and real estate endeavors.

Conclusion

To sum it up, the intangible tax on mortgages in Florida serves as a vital revenue source for the state and has a tangible impact on borrowers in the real estate market. This one-time payment, calculated based on the mortgage amount, presents opportunities for exemptions and strategic tax reduction. Understanding the intricacies of this tax is essential for informed decision-making and potential savings on mortgage expenses. Navigating the Florida real estate market demands careful consideration of the intangible tax implications and exploration of ways to optimize your financial outcomes.

If you have any questions regarding intangible tax on mortgages in Florida, give Community First’s Home Mortgage Advisors a call at 904.371.8150.