Buying a second home is an exciting phase of life as it usually means you have the necessary funds to afford such a luxury, that you are in retirement or semi-retirement, or that you plan to bolster your income by using your second home as a rental. No matter what your reason for purchasing a second home is, Florida is an excellent place to do so because of the favorable tax situation. Anna Maria Island, a barrier island on the coast of Manatee County, is an ideal place to purchase real estate. Considering one of the Anna Maria Island homes for sale? Here are the tax implications of buying a second home on this Florida island.
Residents pay no state income taxes
One of the big draws of purchasing Anna Maria Island homes for sale and property in other Florida cities is that residents of the state do not have to pay state income taxes. However, those who are buying a second home here (and who have a primary home out of state) must become residents of the state before this tax break applies to them. Most states require that you live in Florida at least 183 days out of the year or they will continue to tax you as a resident of their state. Keep a record of how many days you spend in Florida with proof of your time there, such as receipts from restaurants or grocery stores, in case you have to show proof to the IRS.
There are three types of taxes related to Florida real estate
When you purchase Anna Maria Island real estate, you need to be aware of the three types of taxes you may be subject to. They are:
◾ Property tax. All properties in Florida have a taxable value, and you will have to pay annual taxes on this value to your local municipality based on the value assessed. The average real property tax in Florida is 0.98%, which is lower than the national average of 1.08%.
◾ Capital gains tax. There may come a time when you want to sell your Anna Maria Island real estate to move up to a nicer home. If you do that, you could be subject to a capital gains tax on the profit from your sale. The rate you will pay for capital gains tax is based on your tax bracket.
◾ Federal tax on the profit generated from an investment property. If you are renting out your home to provide another source of income, you will have to pay a federal tax on the profit as well as local sales tax.
You can take extra deductions
If you are buying one of the Anna Maria Island homes on the market to be used exclusively for a second home (and not to rent out), you can deduct the mortgage interest the same way you do on your primary home. You can write off 100% of the interest you pay on a total of $750,000 in mortgage debt. You will also be able to deduct property taxes on your second home. The total of all property taxes you can deduct must be $10,000 or under.
Planning to rent out your Anna Maria Island real estate? If you rent the home for 14 days or fewer during the year, you will not have to pay taxes on the income as it is still considered a personal residence. However, if you rent it out for more than 14 days, you will have to report the rental income. However, you are then allowed to deduct rental expenses, depreciation of the property, and any losses.
Other reasons to consider buying a second home on Anna Maria Island
While the tax implications might be enough on their own to persuade you to purchase one of the Anna Maria Island homes for sale for a second house, there are plenty more reasons to live in this beautiful area. They include:
◾ The beaches are world-class. Anna Maria Island not only has some of the most beautiful beaches in the area, but they are also some of the least crowded. Holmes Beach, Coquina Beach, and Manatee Public Beach are the most popular and well-known beaches, but there are lots of other out-of-the-way areas populated mostly by locals that are perfect for quiet relaxation.
◾ There are different areas to choose from. Want to be close to bars, restaurants, and other more touristy amenities? You can look at Anna Maria Island homes for sale on the south end in Bradenton Beach or Holmes Beach. Prefer a more residential area with little traffic and plenty of peace and tranquility? Aim for looking at homes in the city of Anna Maria on the north end of the island.
◾ You can get fresh seafood and delicious island drinks anytime you want. Though it’s a very small island, Anna Maria still has all kinds of options for food and drink. Choose from The Sandbar overlooking the ocean or a relaxed, casual meal and beer at the Anna Maria Island Beach Cafe. Don’t forget to end your meal on a sweet note by visiting The Donut Experiment or Two Scoops.
◾ You can take the trolley everywhere. No need for a car when you buy Anna Maria Island homes for sale unless you plan on heading to the mainland! The Anna Maria Island trolley will take you up and down the island for free every day between 6 AM and 10:30 PM. Talk about relaxing!
Purchasing a second home is a thrilling experience, and you’ll be sure to enjoy your new property when you buy in the tax-friendly Anna Maria Island area. As ever, be sure to heed the advice of your personal tax accountant when considering these implications. Ready to take the next step and start living your island adventure? Reach out to Anna Maria Island real estate agent Alexis Smith-Frady for all your second home buying needs.