Florida lawmakers recently passed the 2026 state budget and annual tax proposal, which, if signed by Governor DeSantis, will deliver $1.3 billion in tax cuts. For commercial real estate stakeholders, the most impactful change comes via House Bill (HB) 7031, which completely eliminates the state’s 2% sales tax and the additional local tax on commercial leases. This change is set to take effect October 1, 2025.
Transition Rules
Any rent for occupancy on or after October 1 is no longer taxable. If tenants prepay October (or later) rent before October 1, they benefit immediately — no tax. Payments made after October 1 for earlier occupancy periods that pre-date the repeal remain taxable, including retroactive rent adjustments.
It’s important to note that short-term residential rentals, as well as vehicle parking, boat docking, and aircraft hangar rentals, will still be taxable. The proposal only repeals section 212.031 of the Florida statutes, not the separate statute under which short-term residential rentals and parking, docking, and aircraft storage space are taxed.
How Will the Tax Elimination Impact Commercial Real Estate Owners & Investors?
- Lower Occupancy Costs: Eliminating lease taxes can shave several percentage points off effective rental costs — translating into higher net operating income and better ROI metrics for investors and owners.
- Improved Competitive Positioning: Properties in Florida may now appear more attractive compared to jurisdictions still burdened with lease taxes, potentially drawing a wave of corporate and retail tenants seeking cost efficiency.
- Enhanced Cash Flow & Valuation: With reduced tax liabilities, property-level cash flows are likely to improve — supporting stronger valuations and financing terms.
- Accelerated Investment Momentum: Maintaining the sales‑tax break signals Florida’s commitment to a business‑friendly climate, and this could boost development activity and investor interest in secondary and tertiary markets, not just coastal hubs.
Preparing for the Commercial Lease Sales Tax Elimination
While Governor DeSantis still needs to sign the budget, commercial real estate investors and owners can start preparing for the tax elimination by:
- Revising financial models to remove future sales tax costs post‑October 1, 2025;
- Addressing lease structuring to account for the tax elimination; and
- Educating accounting teams to cease tax on new charges while appropriately taxing legacy or arrear payments.
By incentivizing investments, Florida’s 2026 budget and tax proposal is poised to enhance returns for commercial real estate owners and investors. However, careful implementation, strategic lease structuring, and thorough due diligence are essential to fully capture benefits and avoid pitfalls.
To learn more about how the proposed tax cuts may impact you, connect with our team today.
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