A Florida property sold for $400,000. Calculate the documentary stamp tax on the deed:
Audio Lesson
Duration: 2:43
Question & Answer
Review the question and all answer choices
$1,400
Answer A ($1,400) is incorrect because it results from using a $0.35 tax rate instead of the correct $0.70 rate. This mistake often occurs when confusing the deed tax rate with other Florida real estate tax rates.
$2,800
$4,000
Answer C ($4,000) is incorrect because it represents only the first step of the calculation ($400,000 ÷ $100 = 4,000) without applying the tax rate. This is a common calculation error where students forget the final multiplication step.
$800
Answer D ($800) is incorrect because it results from dividing the sale price by $500 instead of $100. This mistake typically occurs when misremembering the calculation units for the tax formula.
Why is this correct?
Answer B is correct because it properly applies Florida's documentary stamp tax formula: $400,000 ÷ $100 = 4,000 units × $0.70 tax rate per unit = $2,800. This follows the exact calculation method required by Florida law for deed tax.
Deep Analysis
AI-powered in-depth explanation of this concept
Documentary stamp tax is a crucial concept in Florida real estate because it directly impacts closing costs for buyers and sellers, affecting transaction economics. This question tests your ability to calculate Florida's specific deed tax, which is $0.70 per $100 of consideration. The core concept involves dividing the sale price by $100 to determine the number of units, then multiplying by the tax rate. What makes this question challenging is remembering the exact rate and calculation method, as states vary in their approaches. Many students confuse this with other Florida real estate taxes like intangible tax or documentary stamp tax on mortgages, which have different rates. Understanding this calculation connects to broader knowledge of closing procedures, as agents must be able to estimate these costs for clients and ensure proper payment to the Florida Department of Revenue.
Knowledge Background
Essential context and foundational knowledge
Florida imposes documentary stamp taxes on various documents, including deeds, mortgages, and other real estate-related instruments. For deeds, the tax is $0.70 per $100 of consideration (sale price), with a minimum tax of $0.70. This tax has been a significant source of revenue for Florida for many years, funding various state programs. The tax is typically paid at closing and is usually the responsibility of the seller, though this can be negotiated in the contract. Understanding this tax is essential for proper transaction processing and for providing accurate closing cost estimates to clients.
Think of documentary stamp tax like buying postage stamps for a letter - you need one stamp for every $100 of the sale price, and each stamp costs $0.70.
When calculating, visualize the sale price as letters you need to mail, requiring one stamp per $100.
For documentary stamp tax questions, always divide by $100 first, then multiply by the correct rate. Florida deed tax is $0.70 per $100 - remember this specific rate for the exam.
Real World Application
How this concept applies in actual real estate practice
A Florida listing agent is preparing a seller's net sheet for a $400,000 property listing. The seller wants to know their net proceeds after closing costs. The agent calculates the documentary stamp tax on the deed as $2,800 ($400,000 ÷ $100 = 4,000 × $0.70), which the seller will typically pay at closing. This calculation is crucial for providing accurate estimates and helping the seller understand the financial implications of their sale. Without this knowledge, the agent couldn't properly advise the client on pricing or negotiate terms effectively.
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