Sunday, May 03, 2009

DOCUMENTARY STAMP TAX LOOPHOLE ABOUT TO BE CLOSED [FLORIDA]

Florida imposes documentary stamp taxes on the transfer of real property. Since the tax typically applies only to transfers of real property and not interests in corporations and LLC’s that own real property, one planning method to eliminate the tax is for the seller to first transfer the real property to an LLC, and then sell the LLC interests to the buyer, free of documentary stamp taxes.

This planning was facilitated by case law and Department of Revenue concessions that transfers of real property could be made to a wholly owned entity without documentary stamp taxes being imposed.  Absent this change (or “clarification”) of the law, the first step of the above planning (the transfer of the real property to the LLC) could not be accomplished tax-free.

Likely in response to publicity regarding the planning technique, the Florida Senate has passed legislation that will impose documentary stamp taxes on such LLC transactions. The Florida House also passed legislation, but exempted from tax situations when the property was owned by the entity for at least 3 years prior to the transfer. Therefore, the Senate and House versions will need to be reconciled. We will also be interested to see the final language of the new law, to determine if and how it applies to entities other than LLC’s and whether any planning opportunities remain.

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