Avoiding Documentary Tax on Real Estate Transfers
Previous posts in this Blog discussed the recent Florida Supreme Court decision on the documentary stamp tax in the Crescent case. Documentary stamp tax (“doc stamps”) are important for Florida asset protection planning because this tax is potentially assessed whenever a person conveys property titled in his individual name into an asset protection entity wholly owned by the same transferor. The Florida Supreme Court held that no doc stamps are chargeable on the transfer of real estate owned free and clear to a wholly owned transferee with no monetary consideration. Where the property transferred is subject to a mortgage loan, doc stamps must be paid on the amount of the mortgage balance at time of transfer.
An article in the October issue of the Florida Bar Journal suggests a broader application of Crescent case holding. The article states that not only can doc stamps be avoided in liability protection transfers, but it is also possible to structure a sale for full value to an unrelated third party so that doc stamps are not imposed. Again, the plan assumes no mortgage on the property.
Here is the hypothetical plan suggested in the Journal article. Assume a seller and buyer enter into a sales contract to sell a property for $5 million. To avoid doc stamps, the parties structure the deal as follows: (1) Seller contributes the property to a wholly owned, single member limited liability company (no doc stamps under the Crescent ruling); (2) Seller sells all LLC membership interest to the buyer for $5 million (no doc stamps because its not a sale of real property; (3) Buyer dissolves his LLC and takes title to the property in his own name (again, no property transfers subject to doc stamps). The authors suggest that the Florida legislature may consider laws to close the tax loophole created by the Florida Supreme Court. Until that time, if ever, real estate owners and asset protection planners should keep in mind the Crescent decision and the suggestions in this article to minimize costs of real property transfers.
Last updated on May 22, 2020