In Florida, documentary stamp tax is generally levied at the rate of $.70 per $100 (or portion thereof) on documents that transfer an interest in real property, such as warranty deeds, quit-claim deeds, easements, and deeds in lieu of foreclosure. An exception is Miami-Dade County, where the rate is $.60 per $100 (or portion thereof) when the property is a single-family residence. The tax is calculated based on the amount of consideration that passes between the buyer and the seller, which may include the amount of a mortgage on the property.
In an effort to avoid paying these taxes, individuals sometimes attempt to place property into an entity such as an LLC and then sell the LLC membership units to the purchaser. The argument here is that since LLC interests are personal property, not real property, there should be no documentary stamp tax imposed. However, this argument will fail under Florida Statute 201.02, which states that where real property is transferred to an entity such as an LLC and then the interests in the LLC are sold within three years of the property transfer, the documentary stamp tax will still apply unless it was paid at the outset when the real property was transferred to the LLC.
In proposed Rule 12B-4.060, the Florida Department of Revenue gives the following examples:
Example 1: On July 2, 2009, Lloyd transferred Orange County, Florida real property (the real property), owned by him alone, to a limited liability company (LLC) he owned alone. No documentary stamp tax was paid on the document that transferred the real property to the LLC. On July 3, 2009, Lloyd transferred his interest in the LLC for $1,000,000. The LLC owned no assets other than the real property. Documentary stamp tax of $7,000 was due on the transfer of Lloyd’s ownership interest in the LLC based on the $1,000,000 consideration, since tax was not paid on the full consideration when the real property was transferred to the LLC.
Example 2: On July 2, 2009, Calvin and Sally transferred Duval County, Florida real property (the real property), which they owned equally, to a limited liability company (LLC) owned equally by Calvin and Sally. The full consideration at the time of the transfer was $30,000. Documentary stamp tax of $210 was paid on the document that transferred the real property to the LLC. On July 10, 2009, Calvin and Sally sold their ownership interests in the LLC. No documentary stamp tax was due on the transfer of Calvin’s and Sally’s ownership interests in the LLC, . . . since tax was paid on the full consideration for the real property when it was transferred to the LLC.
Thus, a transfer of real property to an LLC and then a sale of the LLC membership units will likely not avoid Florida documentary stamp tax.
Before selling property in Florida, speak with an experienced Florida tax attorney who can help you fully understand the tax consequences. Especially if someone tells you that they have come up with a great idea to avoid paying documentary stamp taxes…