People who transfer real estate by deed must pay a transfer fee. This fee is charged by the recording offices in most counties. In Florida, this fee is called the “Florida documentary stamp tax.”
The documentary stamp tax is broad and could apply to any transfer of an interest in property. Specific examples include:
- Warranty deeds
- Quitclaim deeds
- Contracts for timber, gas, oil, or mineral rights
- Contracts or agreements for deed
- Assignments of contract or agreement for deed
- Assignments of leasehold interest
- Assignments of beneficial interest in a trust
- Deeds in lieu of foreclosure
In all counties except Miami-Dade County, the Florida documentary stamp tax rate is $0.70 per $100 of money paid for the property. The documentary stamp tax on a $150,000 home would equal $1,050.00. In Miami-Dade County, the tax rate is $0.60 per $100 for single family residences, with a $0.45 surtax on each $100 added for other types of property.
The documentary stamp tax is usually paid to the county clerk or recorder when the deed is recorded. But if the document is recorded after the 20th day of the month following the date that the document is delivered, it must be paid directly to the Florida Department of Revenue.
Penalties and interest can apply to late payment of the documentary stamp tax. The penalty 10 percent of the tax owed per month, up to a maximum of 50 percent. Interest is charged based on formulas that are updated in the first half of each year.
Application to Mortgages
The documentary stamp tax also applies to mortgages and liens against real estate. The rate is $0.35 per $100 (or portion thereof) on documents that are executed or delivered in Florida. This tax would apply to the following:
- Notes and other written obligations to pay;
- Certain renewal notes;
- Bonds (original issuance);
- Mortgages; and
For the first category (notes and other written obligations to pay), Florida law caps the total documentary stamp tax at $2,450.00. But there isn’t a limit on the documentary stamp tax due for mortgages or liens filed or recorded in Florida.
Application to Transfers Between Spouses
It is not uncommon for a husband or wife to transfer property between the two of them. For example, a wife may want to add her new husband’s name to her home after they are married.
In Florida, no documentary stamp tax is owed on this type of transfer if (a) no money or other consideration is given in exchange for the property and (b) there is no mortgage on the property. Otherwise, the documentary stamp tax will apply to the unpaid balance of the mortgage or value given for the property.
Also, documentary stamp taxes are not owed if property is transferred between ex-spouses within one year of their divorce.
Exception for Change in Mere “Form of Ownership”
This tax applies to true home sales, not to simple changes in the mere form of ownership like transfers to a wholly-owned LLC. This makes sense since the property isn’t really changing hands when it is transferred to an LLC that is owned by the owner of the property. The owner is really just changing the form of the ownership. Instead of owning 100 percent of the property, the owner owns 100 percent of the LLC that owns 100 percent of the property. There has been no economic shift, and no tax applies.
But here’s a plan. What if, instead of selling real estate to a buyer, an owner transfers it into an LLC and sells the interests in the LLC to the buyer. There wouldn’t be a tax on the owner’s transfer of the property to the LLC because it is really just a change in ownership. And there wouldn’t be an interest in the transfer of the LLC to the buyer since there is no deed to the property. So no documentary stamp tax, right? And, even better, the local tax appraisers don’t know that the property has been sold, so they don’t even reassess the property for tax purposes.
You know the old saying about something sounding too good to be true. This “drop and swap” technique worked for a while, but the Florida legislature caught on. In 2007, Florida law was amended to require notification when a “change in control” of non-homestead property occurs. This puts the property appraiser on notice that the property needs to be reassessed for tax purposes.
Then, in 2009, Florida law was further amended to trigger the documentary stamp tax when the ownership interest in the owning entity is transferred within three years of the contribution to that entity. In other words, if someone transfers property to an LLC then sells the interest in the LLC within three years, the transfer of the LLC interest is subject to the documentary stamp tax.
Application of Documentary Stamp Tax to Deeds to Living Trusts
There are a few exceptions to the 2009 Documentary Stamp Tax law, including an exception for transfers to grantor trusts. Fla. St. § 201.02 provides:
The transfer for purposes of estate planning by a natural person of an interest in a conduit entity to an irrevocable grantor trust as described in subpart E of part I of subchapter J of chapter 1 of subtitle A of the United States Internal Revenue Code is not subject to tax under this paragraph.
This provision essentially piggybacks on the Internal Revenue Code grantor trust rules by treating transfers to grantor trusts as nontaxable events. But it is more restrictive than the Federal rules in that it requires the grantor trust to be irrevocable (NOTE: transfers to revocable trusts may still be exempt under other provisions, as discussed below).
The most common use of irrevocable trusts are the so-called “intentionally defective grantor trust” (IDGT). IDGTs are designed to exclude assets from the grantor’s estate for estate tax purposes but require the grantor to pay income tax on the assets. Since the grantor is paying the income taxes on property that belongs to others for estate tax purposes, the effect is to allow a greater shift of assets to the next generation free of estate tax.
This means that transfers to IDGTs are generally not subject to the Florida Documentary Stamp Tax under current law.
Transfers to most other trusts (such as living trusts, which are usually revocable) should also be okay, but under different rules. For example, Florida Administrative Rule 12B-4.013(29)(i) provides:
Revocable Trust: A deed to a trustee from a grantor who has the power to revoke the trust instrument, and a deed back to the grantor from the trustee upon revocation of the trust, are not transfers of ownership subject to the stamp tax.
This means that a transfer to a living trust should not be subject to documentary stamp tax under the administrative rules. The only fees should be recording fees and document stamps (usually around $10.00/deed).
Note: This doesn’t mean that transferring your homestead to a trust is necessarily a good idea. Although you shouldn’t need to pay taxes and, with appropriate language, could preserve tax benefits of homestead exemption, you may lose important asset protection benefits associated with Florida homesteads. See Using Deeds to Avoid Probate of Real Estate in Florida for more information.
Note: There are a number of other conveyances that are exempt from Florida documentary stamp tax. These are set forth in Florida Administrative Rule 12B-4.014.