"Get it right the first time, that’s the main thing” – Billy Joel
Quite frequently individuals convey property post closing from their individual names to a corporation or limited liability company of which they are the beneficial owners. Another common practice is for spouses to transfer property between themselves. Typically, when these paper transactions are recorded, no documentary stamps are collected. Unfortunately, the State of Florida has cracked down on this practice and has taken the position that a transfer of real property between spouses or from an individual to their limited liability company or corporation is subject to Florida’s documentary stamp tax under Section 201.02 (1) of the Florida Statues.
However, an exception may be made if it is demonstrated that no mortgages were on the property at the time of conveyance between husband and wife or if there were no mortgages at the time the conveyance is made to a limited liability company or corporation and the grantors and the grantees are the same beneficial owners. Otherwise, a tax of 7/10ths of one percent of the outstanding mortgage will be charged and collected following discovery of the transfer by the Florida Department of Revenue.
For example, if there is an outstanding mortgage of $300,000 on the property to be transferred and the property is conveyed from Mr. Smith to Mr. Smith’s Limited Liability Company or Corporation the documentary transfer tax which is subject to collection would be $2,100. In this similar situation if a transfer is between husband and wife, even if the reason is solely for estate planning purposes, a conveyance tax based upon 50% of the outstanding balance of the mortgage (representing ½ interest of the spouse) will be imposed. In this instance the tax would be $1,050.00. As a result if the tax is not paid at the time of transfer, individuals should be alerted that in the event of a review or audit of the public records by the Florida Department of Revenue they certainly will be found subject to this tax if there is a mortgage on the property.
On a related issue, quite often title companies, who are ill informed, transfer title by use of a Quit Claim Deed. Unfortunately, many underwriters take the position that a Quit Claim Deed will break the warranty of title and render the title insurance policy virtually useless should a subsequent claim or issue arise at a later date. For this very reason the appropriate vehicle to transfer title is a Special Warranty Deed. Whenever possible, it is advisable to get it right the first time and obtain advice on the best manner of taking title at the time of purchase for both estate planning as well as tax planning purposes.