If you’re a Colombian investor interested in the Florida real estate market, you might wonder how this affects your tax declaration in both the United States and Colombia. The topic of taxes can be daunting, but the good news is that Florida’s tax system has numerous advantages that can make your investment much more profitable and tax-efficient. Moreover, there are mechanisms to avoid double taxation, meaning you won’t pay taxes twice on the same income.
In this blog, we will explore the key differences between Florida’s tax system and Colombia’s, how to declare your income in both countries, and most importantly, how you can take advantage of U.S. tax benefits to optimize your earnings.
1. No State Income Tax in Florida
One of the main advantages of investing in Florida is the absence of a state income tax. This means that at the state level, you won’t have to pay taxes on income generated by your properties, whether through rental income or sales. You’ll only be subject to federal taxes, which often have lower rates than those in Colombia.
In Colombia, however, income from rental or sale of property is subject to income tax, which can range from 19% to 39% depending on the type of income and amount. This disparity makes the U.S. system more favorable in many cases.
2. Capital Gains Tax
When you sell a property in the United States, you are subject to capital gains tax, but this tax offers a preferential rate if you hold the property for more than one year. Rates range from 0% to 20%, depending on your income level. In contrast, in Colombia, occasional gains from the sale of real estate are taxed at a flat rate of 10%.
While the Colombian tax may seem lower at first glance, there are several deductions available in the U.S. that can significantly reduce the taxable amount. For instance, you can deduct maintenance expenses, property taxes, and depreciation, which can drastically lower your taxable gains.
3. Property Depreciation: A Key Tax Advantage
One of the greatest tax advantages of the U.S. system is property depreciation. This allows you to deduct a portion of the property’s value each year, reducing your taxable income. Typically, you can depreciate residential properties over a 27.5-year period.
This concept does not exist in Colombia’s tax system, making depreciation a unique benefit that significantly lowers your taxes in the U.S.
4. Property Taxes
In Florida, property taxes range from 1% to 2% of the assessed value. While this tax may seem high compared to Colombia’s property tax, it’s important to note that you do not pay state income tax in Florida. Additionally, this tax is deductible at the federal level, meaning you can subtract it from your taxable income and reduce your overall tax burden.
5. Inheritance and Gift Taxes
Florida does not impose state taxes on inheritances or gifts, which is a significant advantage for those looking to transfer properties to their heirs. In Colombia, inheritances and gifts are taxed at a fixed rate of 10%, making the U.S. a much more favorable environment for estate planning.
6. Avoiding Double Taxation: The Colombia-U.S. Treaty
One of the major concerns for Colombian investors is double taxation—having to pay taxes in both the United States and Colombia. Fortunately, there is a treaty in place to avoid double taxation between the two countries. This means that the taxes you’ve already paid in the U.S. can be credited against your tax liability in Colombia.
How Does the Treaty Work?
If you earn income in the U.S., whether from rental properties or property sales, those earnings will be subject to federal taxes. When you file your tax return in Colombia, you must report this income, but you can deduct the taxes you already paid in the U.S. from your tax obligations in Colombia.
For example, if you paid 15% in taxes on your rental income in the U.S., you will only owe the difference if Colombia’s rate is higher. If Colombia’s rate is 10% for occasional gains, and you already paid 20% in the U.S. on capital gains, you will not owe additional taxes in Colombia.
7. What Happens When You File Taxes in Both Countries?
When you invest in real estate in the U.S., you will need to declare your income and gains in both countries. In the United States, you will file your taxes at the federal level, possibly utilizing available deductions and credits. Then, in Colombia, as a country that taxes worldwide income, you must include those earnings in your tax return.
Thanks to the treaty to avoid double taxation, you will not be subject to double taxation. Instead of paying taxes twice, you can deduct the taxes already paid in the U.S. from what you owe in Colombia, making your total tax burden more efficient and fair.
Conclusion: Tax Benefits of Investing in Florida
Investing in Florida offers a range of tax advantages that, if properly leveraged, can make your real estate investments significantly more profitable than in Colombia. The absence of a state income tax, property depreciation, and the ability to deduct related expenses are substantial benefits that can reduce your tax burden.
Additionally, the Colombia-U.S. treaty to avoid double taxation ensures that you will not pay more taxes than necessary. If you’re considering diversifying your portfolio and taking advantage of real estate opportunities in Florida, the U.S. tax system, along with proper tax planning, can provide the peace of mind and profitability you seek.
Important: At Wise Group, as real estate professionals, we are not authorized by law to provide tax or legal advice. This blog is for informational purposes only and should not be considered professional advice. We recommend contacting an attorney or accountant experienced in international tax matters before making decisions related to your real estate investments and tax filings.
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