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Vacation rentals vs. long-term rentals — and not paying taxes

May 5, 2017
By ERIC FEICHTHALER - Real Estate Law , Cape Coral Daily Breeze

Dear Mr. Feichthaler:

I am thinking about moving into a small condominium, then renting out my existing house. This could be a vacation rental or a longer-term rental. I want to avoid paying sales tax on the rental, what can I do?

- James L.

Dear James:

As rental rates rise both for short- and long-term rentals, more of my clients are considering renting their properties. For purposes of this answer, I assume you are asking what can be done, within the law, to avoid being responsible for sales tax on rental payments.

The law in Florida is clear sales tax does not apply to rentals that are longer than six months. There are several steps that a property owner must take to ensure they are not subject to tax, namely having a written, bona fide lease for the requisite period. The lease must not allow the tenant to break the lease early, otherwise the Department of Revenue could argue that it is not, in fact, a long-term lease since it can be broken. The state tax rate is six percent.

Additionally, Lee County also charges a 5 percent tax on rentals of six months or less, known as the "Tourist Development Tax." These taxes are used to promote our area throughout the world, and to help fund projects here (JetBlue Park is one major example). Therefore, for any rental of six months or less, you will need to pay 11 percent tax on these rental payments, which you would charge to your renter.

Consider the potential costs of compliance when determining what the best option is for you, between vacation and long-term rentals. If you do engage in renting short-term and not pay the tax, there are still civil penalties, and potentially criminal consequences as well.

Eric P. Feichthaler has lived in Cape Coral for 28 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continued his service to the community through his chairmanship of the Harney Point Kiwanis Club KidsFest from 2011-2015, which provides a free day of fun and learning to thousands of Cape Coral families, and funds numerous scholarships. He has been married to his wife, Mary, for 14 years, and they have four children together. Recently, he earned his board certification in Real Estate Law from the Florida Bar. He is also a Supreme Court Certified Circuit Civil Mediator.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.

 
 
 

 

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