Taxes Affecting Real Estate: Free Florida Real Estate Practice Questions

1. 1. A property in Florida is assessed at $220,000. The county's millage rate is 15 mills. The homeowner qualifies for the standard Florida homestead exemption of $50,000. What is the annual property tax owed?

   • A) $2,550 -- calculated as ($220,000 - $50,000) x 0.015
   • B) $3,300 -- calculated as $220,000 x 0.015
   • C) $1,650 -- calculated as ($220,000 - $110,000) x 0.015
   • D) $3,750 -- calculated as $250,000 assessed value x 0.015
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   Correct answer: A) $2,550 -- calculated as ($220,000 - $50,000) x 0.015

   Step 1: Apply the homestead exemption -- $220,000 assessed value - $50,000 exemption = $170,000 taxable value. Step 2: Convert mills to decimal -- 15 mills = 0.015 (1 mill = $1 per $1,000 = 0.001). Step 3: $170,000 x 0.015 = $2,550. The homestead exemption reduces the taxable value, not the tax owed. One mill = $1 per $1,000 of assessed value, so 15 mills = $15 per $1,000. Note: Amendment 5 (2023, effective beginning with the 2025 tax year) indexes the second $25,000 tranche of the homestead exemption to the CPI annually, but for exam purposes the baseline exemption structure remains $50,000.

2. 2. A Florida homeowner with a substantial Save Our Homes benefit sells her home and wants to transfer ('port') that accumulated tax savings to a new Florida homestead. What are the rules governing SOH portability?

   • A) Portability transfers automatically when the homeowner files a deed change with the county clerk; no separate application is required
   • B) The SOH benefit can be transferred to any property in any state, up to the full accumulated amount with no dollar cap
   • C) The accumulated SOH benefit can be transferred to a new Florida homestead, up to a maximum of $500,000, if the new homestead application is filed within 2 years of relinquishing the previous homestead
   • D) Portability is only available if the new homestead is in the same county as the prior homestead; out-of-county transfers are not permitted
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   Correct answer: C) The accumulated SOH benefit can be transferred to a new Florida homestead, up to a maximum of $500,000, if the new homestead application is filed within 2 years of relinquishing the previous homestead

   SOH portability (Amendment 1, 2008) allows homeowners to transfer their accumulated Save Our Homes benefit to a new Florida homestead. Key rules: (1) maximum transferable benefit is $500,000; (2) the new homestead application must be filed within 2 years of January 1 of the year after the previous homestead was abandoned; (3) portability works statewide -- not limited to the same county. If moving to a less expensive home, the portability amount is prorated. This is a Florida-specific rule tested on the exam.

3. 3. A married couple sells their primary residence in Florida after owning and using it as their principal home for 4 of the past 5 years. They realize a capital gain of $480,000 on the sale. What is their federal income tax liability on this gain?

   • A) The full $480,000 gain is taxable at the long-term capital gains rate because the couple did not reinvest the proceeds in a new home
   • B) The couple owes capital gains tax on $230,000 -- the amount by which their gain exceeds the $250,000 single exclusion limit
   • C) The couple pays no capital gains tax because the entire $480,000 gain is excluded under the IRC Section 121 married filing jointly exclusion of $500,000
   • D) The couple pays capital gains tax on $480,000 unless they purchase a more expensive replacement home within 180 days
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   Correct answer: C) The couple pays no capital gains tax because the entire $480,000 gain is excluded under the IRC Section 121 married filing jointly exclusion of $500,000

   IRC Section 121 allows an exclusion of up to $250,000 per person ($500,000 married filing jointly) from the sale of a principal residence, provided the home was owned AND used as the primary residence for at least 2 of the 5 years preceding the sale. This couple lived in the home for 4 of the past 5 years and their gain ($480,000) is less than the $500,000 exclusion -- so they owe NO capital gains tax. There is no requirement to reinvest in a new home (that rule was eliminated in 1997).

4. 4. A single taxpayer sells her Florida vacation condominium (not her primary residence) for a capital gain of $80,000 after owning it for 3 years. Which tax treatment applies?

   • A) The gain is entirely excluded because the property is located in Florida, which has no state income tax on capital gains
   • B) The gain qualifies for the $250,000 Section 121 exclusion because the taxpayer owned the property for at least 2 years
   • C) The gain qualifies for a 1031 exchange automatically because the taxpayer owned the property for more than 12 months
   • D) The $80,000 gain is taxable as long-term capital gain because the property was held for more than one year but does not qualify for the Section 121 exclusion, which requires the property to be the taxpayer's primary residence
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   Correct answer: D) The $80,000 gain is taxable as long-term capital gain because the property was held for more than one year but does not qualify for the Section 121 exclusion, which requires the property to be the taxpayer's primary residence

   The Section 121 exclusion applies ONLY to the taxpayer's principal residence -- not to vacation homes, rental properties, or investment properties. Because this is a vacation condo (not her primary residence), the gain does not qualify for the Section 121 exclusion. Having held the property for more than one year, the $80,000 gain is taxed at long-term capital gains rates (0%, 15%, or 20% depending on her income). Florida has no state income tax, which eliminates state-level capital gains tax, but federal capital gains tax still applies.

5. 5. A non-homestead property in Florida (such as a rental or investment property) is NOT protected by the Save Our Homes cap. Under Florida's non-homestead property assessment rules, annual increases in assessed value are limited to:

   • A) 3% per year, the same cap that applies to homestead properties under Save Our Homes
   • B) 5% per year, as established by Amendment 1 (2008) for non-homestead properties, until the cap is reset upon a change in ownership
   • C) 10% per year, as set by Amendment 1 (2008), limiting assessment increases for non-homestead properties while the ownership remains unchanged
   • D) There is no cap -- non-homestead properties are assessed at just (market) value each year with no limit on annual increases
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   Correct answer: C) 10% per year, as set by Amendment 1 (2008), limiting assessment increases for non-homestead properties while the ownership remains unchanged

   Amendment 1 (2008) extended assessment limitations to non-homestead properties, capping annual increases at 10% (not the 3% that applies to homesteads). This cap applies to the same owner as long as ownership doesn't change -- upon a sale or transfer, the assessment resets to just (market) value. The 10% cap helps investors and landlords manage tax increases in rapidly appreciating markets, though the protection is less generous than the homestead SOH cap.

6. 6. A non-resident alien purchases a Florida investment property and later sells it at a gain. Under the Foreign Investment in Real Property Tax Act (FIRPTA), what is required at closing?

   • A) The foreign seller must pay a 10% penalty to FREC in addition to any federal capital gains tax owed on the transaction
   • B) The buyer must withhold 15% of the gross sales price (or the amount realized) and remit it to the IRS as a withholding tax, unless a specific exemption applies
   • C) The closing agent must file a special FREC disclosure form within 30 days of closing and withhold 10% of the net proceeds
   • D) Foreign sellers are exempt from capital gains tax in the United States under international tax treaties, requiring no withholding at closing
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   Correct answer: B) The buyer must withhold 15% of the gross sales price (or the amount realized) and remit it to the IRS as a withholding tax, unless a specific exemption applies

   FIRPTA (Foreign Investment in Real Property Tax Act) requires the BUYER to withhold 15% of the gross sales price (amount realized) when a foreign person sells U.S. real property and remit it to the IRS. This withholding ensures the U.S. government collects taxes from foreign sellers who might otherwise leave the country without paying. Exemptions exist (e.g., sale price under $300,000 for buyer's primary residence). Florida receives significant investment from foreign nationals, making FIRPTA a frequently relevant Florida exam topic.

Not affiliated with Pearson VUE, the Florida DBPR, or FREC. This is an independent study tool; questions are original and verified against Florida statutes and FREC rules.