Owning Real Estate in an LLC - The New Landscape in Florida

[Derek Carrillo]

Presented by Premier Law PLLC

According to Florida tax regulations, real property without a homestead exemption is eligible for a 10% cap on annual increases in its assessed value for real property tax purposes.

This cap typically remains in effect unless there is a "change in ownership or control" or a qualifying improvement to the property, among other exceptions. Due to significant increases in property values in recent years, the 10% cap statutes have led to substantial tax savings for many Florida property owners.

HOWEVER, a 2023 appellate case in Florida - S & A Prop. Inv. Servs. v. Garcia, 360 So. 3d 432 (Fla. 3d DCA 2023) - determined that transferring real property to a limited liability company controlled by the grantors constituted a “change of ownership” of the subject property under state law, and therefore, Florida’s beneficial “10% Assessment Limitation” (i.e., a 10% cap on annual increases in a property’s assessed value for Florida property tax purposes) on the subject property COULD NOT be retained by the LLC after the transfer.

Now your 10% annual tax cap is GONE 🤯

Despite the Florida Supreme Court's recent denial of discretionary review, making the decision final, the S & A case could significantly affect real property taxes for various related-party real estate conveyances.

This includes:

• Internal restructurings of real estate holdings
• The admission of new investors
• Estate planning transactions.

As a result, careful consideration of the ramifications of the S & A decision is essential when planning internal corporate restructuring transactions involving recorded deeds, as well as in estate planning transactions.

CAVEAT❗️❗️❗️

• This DOES NOT presently apply to transfers of non-homestead residential property to revocable living trust agreements or land trusts
• This is limited only to non-homestead properties (such as vacation homes, secondary residences, rental properties, or vacant land)

KEY TAKEAWAYS

It is important to remember that a change of ownership or control might not make a difference unless the property has been appreciating at a rate of greater than 10% annually. However, in hot real estate markets with 10% plus annual appreciation rates, the impact can be significant.

When planning a transaction that involves conveying real property to a controlled entity, the property tax records should be reviewed to determine whether there is a gap between the fair market value ("FMV") (from the county property appraiser's perspective) and the assessed or taxable value (the amount on which the tax is calculated).

It is common to see wide differences between the FMV and taxable value in rapidly appreciating markets. In that case, a tax impact of the conveyance would be certain — since the change of ownership would lift the 10% annual cap on increases in taxable value for the year following the conveyance.

Further, even in a situation in which there is not a significant gap between the FMV and the taxable value, it is possible that the property could appreciate significantly more than 10% the following year, when reassessment would occur.