Documentary Stamp Tax on a Mixed Real and Personal Property Sale
Palm Coast Holdings LLC contracts to sell a warehouse in Orange County, Florida, to Brevard Logistics Inc. The written contract states a total price of $1,450,000, allocated as $1,300,000 for the real property and $150,000 for shelving, forklifts, and other tangible personal property. The buyer takes the real property subject to an existing $500,000 mortgage and pays $800,000 cash at closing. At closing, Brevard gives Palm Coast a new purchase-money note and mortgage for $900,000, which is recorded in Orange County. The deed recites total consideration of $1,450,000. Palm Coast agrees to pay the documentary stamp tax on the deed; Brevard agrees to pay the tax on the new mortgage. Neither party obtained an independent appraisal, but the contract allocation was negotiated and the personal property was separately listed with values. Orange County has no documentary stamp surtax.
1. Compute the Florida documentary stamp tax on the deed if the allocation is respected, and if it is not. Explain the treatment of the assumed mortgage.
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Florida documentary stamp tax on a deed is $0.70 per $100 or fraction of total consideration. If the allocation is respected, only the real property consideration is subject to deed tax. The real property price is $1,300,000. Dividing by 100 gives 13,000 units, and 13,000 times $0.70 equals $9,100. The $150,000 allocated to shelving, forklifts, and other tangible personal property is not subject to deed tax if the allocation is bona fide and supported.
If the allocation is not respected and the Department taxes the full $1,450,000 recited in the deed, the tax is 14,500 units times $0.70, or $10,150. The $500,000 existing mortgage is part of the consideration for the real property because the buyer takes the property subject to it. It is not added on top of the $1,300,000 real property price if that price already includes the mortgage. The taxpayer has the burden to prove that a personal property allocation reflects fair market value and was not made merely to reduce documentary stamp tax.
2. Compute the documentary stamp tax on the new $900,000 mortgage and identify who is liable. Does the existing mortgage create additional tax?
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The new $900,000 purchase-money mortgage is a written obligation secured by Florida real property. The documentary stamp tax rate on a mortgage is $0.35 per $100 or fraction of the indebtedness. Dividing $900,000 by 100 gives 9,000 units, and 9,000 times $0.35 equals $3,150. The parties agreed that Brevard, the buyer and mortgagor, will pay the tax on the new mortgage, and the mortgage should not be recorded without evidence that the tax was paid.
The existing $500,000 mortgage does not create an additional mortgage tax on this closing. That mortgage was taxed when it was originally recorded. The buyer's assumption of the existing mortgage matters for deed consideration because it is part of what the seller receives, but it is not a new mortgage document. No Orange County surtax applies because the property is in Orange County and the facts state that no documentary stamp surtax applies.
3. What if the deed recites $1,450,000 and the contract allocation is not reflected in the deed? What should the parties do to reduce audit risk and penalty exposure?
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A deed that recites $1,450,000 gives the Department a basis to assess deed tax on the full amount, or $10,150. The contract allocation may support a refund or a reduced assessment, but the parties will need strong evidence. They should obtain an independent appraisal or a detailed closing statement that lists each item of personal property, its fair market value, and the basis for the allocation. The deed should ideally state the allocation, or the closing documents should clearly incorporate it. Oral statements after an audit are weak evidence.
If tax was underpaid, the parties should consider filing a corrected deed or a refund claim with supporting documentation before the Department assesses additional tax. Florida imposes penalties and interest on unpaid documentary stamp tax, including a late-payment penalty that can be 10% of the tax due, and willful evasion can lead to more severe penalties. The parties should also confirm that the mortgage tax was paid before recording. Good practice is to document the allocation at closing, retain the appraisal, and make sure the deed, closing statement, and contract are consistent.