Ronald S. Webster

If you have a principle residence or vacation home, an excellent opportunity to substantially reduce potential estate tax liability is through the use of an estate planning tool “The Qualified Personal Residence Trust.” Through the use of a QPRT, the IRS permits a homeowner to make a tremendously discounted gift of their residence to their children, while still retaining the long-term use of the property.

Florida homestead status is an important concept which appears in three different sections of the Florida State Constitution. First, obtaining homestead status on your property saves the homeowner on their real estate tax assessments. Secondly, obtaining homestead status caps the amount a homeowner's property can be reassessed annually. Thirdly, homestead status protects a homeowner with asset protection for his home against third party creditors.

While a person may have more than one residence, theoretically a person may have only one domicile. The process of establishing a Florida domicile can be complex as well as elusive. Many individuals are under the mistaken impression that if they purchase a home in Florida and send out address change cards they are officially Florida residents and have fulfilled all the requirements for relinquishing residency in their former state, however, many more steps need to be taken.

1. How is capital gain tax calculated?
Capital gain tax on property held for more than 365 days is computed at a flat rate of 15% and is due and payable in full on the next tax reporting year following the sale (commonly April 15th for most individuals). Gain is defined by taking the net closing proceeds and subtracting the “basis” of the property consisting of the actual purchase price together with closing costs and capital improvements, which enhanced or extended the life of the property. Real property taxes and general maintenance are not taken into consideration when establishing basis.

2. What is a deferred exchange?
Section 1031 of the Internal Revenue Code defines a deferred exchange as one when which a taxpayer transfers property held for productive use in business or for investment and later receives property to be held for similar purposes. The key is intent. Accordingly, if a party owns a vacant lot and the intent was for investment purposes and later replaces this property with a condominium or house with the primary intent of rental or investment purposes the properties are deemed to be like kind.

Quite often Capital Gains tax is due on sale and transfer of a real property. In 1997 tax laws were substantially modified to provide a number of measures to allow individuals to keep more of the profits earned when a sale occurs.

Capital Gain defined
Gain is defined by taking the net closing proceeds and subtracting the "basis" of the property consisting of the actual price altogether with closing cost and captital improvements which enhance or extended the life of the property.

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