Federal Tax on Rental Income

Net rental income is reported on Schedule E of your Form 1040. Gross rents minus deductible expenses — mortgage interest, property taxes, insurance, repairs, management fees, depreciation — give you the net figure that flows into your adjusted gross income. Federal tax rates on that income range from 10% to 37%, depending on your total taxable income from all sources.

Residential rental property is depreciated over 27.5 years. On a $500,000 building (land excluded), that’s about $18,182 per year in depreciation — a paper expense that reduces taxable income without costing you any cash. For many Miami landlords, depreciation is the reason their rental property shows a tax loss on paper even though the bank account tells a different story.

The passive activity rules limit how much of that loss you can deduct. If your AGI is under $100,000 and you actively participate in managing the property, you can deduct up to $25,000 in rental losses against your other income. Above $150,000 AGI, that allowance disappears entirely. But the suspended losses don’t vanish — they accumulate and you can use them when you sell the property.

No State Income Tax: What It Means in Practice

There is no Florida income tax return. No state Schedule E. No state passive loss calculations. Your rental income tax obligation is entirely federal. For a landlord earning $60,000 in net rental income, the state tax savings compared to New York is roughly $5,400 per year (at an 9% effective state rate); compared to California, it’s about $5,600 (at a 9.3% rate). Over a 10-year hold, those savings compound into real money.

This advantage is one reason out-of-state investors pour money into Miami real estate. But if you live in New York or California and own Miami rental property, your home state still taxes you on that income. Florida’s zero rate only benefits you if Florida is your state of residence. Non-resident landlords file only a federal return for Florida properties — there’s no Florida non-resident income tax filing to worry about.

Property Taxes in Miami-Dade County

Florida doesn’t tax income, but it does tax property. Miami-Dade County’s total millage rate (county, city, school district, and special districts combined) typically runs between 18 and 22 mills, meaning $18 to $22 per $1,000 of assessed value. On a property assessed at $400,000, that’s a $7,200 to $8,800 annual tax bill. Not cheap, but predictable, and fully deductible on Schedule E against your rental income.

Florida reassesses property annually at market value, but the Save Our Homes cap limits assessment increases on homesteaded properties to 3% per year or the CPI, whichever is lower. Here’s the catch: rental properties are not homesteaded. Investment properties get reassessed at full market value every year. In a rising market like Miami has seen since 2020, that means your property tax bill can jump 10% or 15% in a single year if values surge.

The difference between homesteaded and non-homesteaded tax bills in Miami-Dade can be startling. A primary residence purchased for $350,000 ten years ago might be assessed at $480,000 thanks to the Save Our Homes cap. The identical house next door, purchased last year as a rental for $700,000, gets assessed at $700,000. Same neighborhood, vastly different tax bills.

The Homestead Exemption and Rental Property

Florida’s homestead exemption knocks up to $50,000 off the assessed value of your primary residence. But it only applies to your primary residence — not to rental properties, second homes, or investment properties. If you live in one unit of a duplex and rent the other, only the portion you occupy qualifies for the exemption.

Some landlords start with a house they live in, move out, and convert it to a rental. When you do that, you lose the homestead exemption, and the property gets reassessed to market value. If you’ve been in the house for 15 years and the market has tripled, that reassessment can double your property tax bill in year one. Plan for it. We’ve seen landlords taken off guard by a $4,000-to-$9,000 jump in property taxes after converting a homesteaded property to a rental.

Short-Term Rentals and Tourist Tax

Miami is one of the biggest short-term rental markets in the country. If you’re renting on Airbnb, Vrbo, or any platform for stays under six months, you owe Florida’s 6% sales tax, Miami-Dade County’s 6% Tourist Development Tax, and the city of Miami Beach’s additional 4% resort tax if the property is on the Beach. That’s a combined transient tax of up to 16% on gross rental revenue, collected on every booking.

Airbnb collects and remits some of these taxes automatically, but not all of them in every jurisdiction. You’re responsible for making sure the full amount is covered. Failing to collect and remit tourist taxes is treated as a sales tax violation in Florida, and the penalties include interest plus a 10% penalty per month, up to 50%.

Short-term rental income is reported on Schedule E (passive) or Schedule C (if you provide hotel-like services). The tourist taxes you collect and remit are not income to you — they’re pass-through obligations. But the administrative burden of tracking bookings, collecting taxes, and filing with multiple jurisdictions adds up, especially if you manage multiple units.

Selling Rental Property in Miami

When you sell, you owe federal capital gains tax on the profit (after accounting for your adjusted basis, which includes accumulated depreciation). Depreciation recapture is taxed at 25%. Long-term capital gains (holding period over one year) are taxed at 0%, 15%, or 20% depending on income, plus potentially the 3.8% NIIT for high earners. Florida imposes no state-level capital gains tax.

Florida’s documentary stamp tax on real estate transfers is $0.70 per $100 of the sale price (or $0.60 per $100 in Miami-Dade County for certain deeds). On a $600,000 property, that’s about $3,600 to $4,200. There’s also a surtax of $0.45 per $100 in Miami-Dade on deeds for consideration over $100. These transfer costs are deducted from your proceeds when calculating your taxable gain.

A 1031 exchange works the same way in Florida as anywhere else — defer capital gains and depreciation recapture by reinvesting in like-kind property within 180 days. Since there’s no state income tax to defer, the exchange is purely a federal strategy. But the federal savings alone can be substantial on a property with significant appreciation and accumulated depreciation.