Real estate transactions subject to documentary stamps a few suprises.
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The Florida Department of Revenue has recently been auditing deeds that have been recorded with only the minmum documentary stamps of seventy cents paid. The tax rate for recorded documents is seventy cents per one hundred dollars (or fraction thereof) of consideration. The question is what does the Department of Revenue consider to be consideration?

The scenario was that an investor purchased an investment property in a 55+ community with a 55+ straw man who was both on the deed and the mortgage. Subsequently, the investor quit claimed the 55+ straw man off title. No consideration was paid to the straw man for the quit claim deed. The investor paid seventy cents documentary stamps upon recording the deed. The file was audited by the Department of Revenue. Their position was that the deed was taxable according to the principal balance of the existing mortgage. So if the mortgage balance was $200,000, the tax claimed would be $1,400.00.

The relevant statute is Section 201.02  “Tax on deeds and other instruments relating to real property or interests in real property” which provides in section (1) 

... For purposes of this section, consideration includes, but is not limited to, the money paid or agreed to be paid; the discharge of an obligation; and the amount of any mortgage, purchase money mortgage lien, or other encumbrance, whether or not the underlying indebtedness is assumed. If the consideration paid or given in exchange for real property or any interest therein includes property other than money, it is presumed that the consideration is equal to the fair market value of the real property or interest therein.

The amount of any mortgage” means that the Deprtment of Revenue considers the outatanding mortgage balance to be the taxable amount on any recorded deed. If that comes as a surprise, the Florida Administrative Code Section 12B-4.013 “conveyances subject to Tax” has a few more suprises for you (the numbers below are the relevant paragraph numbers from the Administrative Code):

  1. Exchanges taxed on “fair market value of the property transferred plus any other consideration given.”

  1. Deed in lieu of foreclosure: taxed on the outstanding mortgage balance plus accrued interest.

  1. Certificate of Title: (the “deed” from a foreclosure sale) taxed at the rate of the highest bid, paid by the high bidder, and deducted from any surplus funds the owner would have been entitled to.

(28) Assignment of Bid: taxable.

(7) (8)(10) Transfers into or out of Corporations, Partnerships, or for stock or partnserhsip shares: taxed at fair market value.

(13) Cemetary Lots: are considered realty, and thus subject to tax.

(17) Agrement or Contract for Deed: Taxes on the full contract price are due on signing. Consolation prize: as you paid the stamps in advance, no additional taxes are due when you finially record the deed.

(18) Cancellation of Contract for Deed: taxes on the amount no longer owed to the seller.

  1. Assignmnt of Contract for Deed: taxable on the additional consideration paid, plus the unpaid balance under the original contract for deed.

  1. Gifts: Taxed on the unpaid balance of any mortgages on the property at the time of the gift.

(24) Wrap around mortages: where the seller lends the buyer the balance of the purchase price, the amount of such loan shall be included in the amount of consideration subject to stamp taxes.

(31) Husband and Wife: transfer of the marital home to a (former) spouse pursuant to a divorce decree– tax exempt ! Adding a spouse to a deed or taking a spouse off of a deed (prior to divorce decree) – taxed on the amount of the outstanding mortgage balance.

  1. Trusts

    1. Deed into a land trust where grantor and trust beneficiary are the same: tax exempt!

    2. Assignment of beneficial interest: taxable. Where the beneficial interest is a percentage of ownership, only that proportion of the value is taxed.

  1. Change of Trustee: not taxable

(e) Deed from trustee where grantee and beneficiary are the same: tax exempt.

 

In conclusion, investors should be aware that in quit claiming a property to merely to change business entities or business partners, or even to add or remove spouses in non-divorce situations, the State of Florida can demand full documentary stamps on the transaction. In addition, the State can even impose penalties for failure to pay full doc stamps at the time of recording. The penalties range from: payment of the tax due, or an additional fine of up to fifty percent, or two hundred percent upon a finding of deliberate fraud, or punishable as a misdemeanor of the first degree. Additionally, interest is imposed at the rate of 12% [ see Florida Statutes Section 201.17]. Repeated calls to the Department of Revenue for further clarification were not returned by the time this article went to press.

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About the Author
Alexander Johnson runs a landlord tenant and real property law practice in Fort Lauderdale. He was a prosecutor for 7 years and has been in private practice for 8 years. He can be reached at 954-779-7050.

Law Office of:
ALEXANDER PATRICK JOHNSON
420 SE 13th Street
Fort Lauderdale, FL 33316
Telephone (954) 779-7050