Tax Implications of Selling Your Home in Florida

When selling your home in Florida, it’s important to be aware of potential tax implications. If you’ve made a profit on the sale, you may be subject to capital gains taxes. Understanding the relevant tax rules can help you minimize your tax liability and keep more money in your pocket. Don’t rush through the process – take the time to consider the tax implications before moving on to the next chapter in your life in your new home.

The Likelihood of Paying Taxes on the Sale of Your Home 

When selling your home in Florida, if it has appreciated significantly over time – as is often the case – you can expect a sizeable payout. However, it’s important to note that you may also owe the IRS a portion of the profits earned from the sale. This is because your home is considered an asset and is therefore subject to capital gains taxes.

When it comes to tax time for someone who recently sold a home, the biggest question is whether they will have to pay federal capital gains taxes on the profit. Capital gains refer to the amount of money you earn from selling assets such as property, cars, investments, and other high-value items.

Between 2020 and 2022, home prices rose dramatically, leading to significant capital gains for homeowners. As a result, it’s likely that you’ll have to pay taxes when you sell your home.

How Capital Gains Taxes Work

Let’s take a closer look at how capital gains taxes work and how they apply when selling your home

A capital gains tax is a tax that is imposed on the profits earned when you sell a capital asset. The IRS considers nearly everything that you own and use for personal or investment purposes to be a capital asset. This tax is due on the tax deadline that follows the sale of the asset and applies to investments such as stocks, bonds, and real estate.

When selling your home, the IRS distinguishes between short-term gains and long-term gains. If you’ve owned your home for less than a year, any profit is considered a short-term gain. However, if you’ve lived in the property for a year or more, the gain is categorized as long-term capital gains. The capital gains tax you owe is determined by the duration of ownership and your income level at the time of sale.

Short-term gains are taxed at your regular income tax rate, while long-term capital gains receive preferential tax treatment at rates of 0%, 15%, 20%, or 28%, depending on your income and filing status. Additionally, meeting specific conditions may allow you to exclude the first $250,000 to $500,000 from the sale of your home, avoiding taxes on that amount entirely.

How to Avoid Capital Gains Tax

When selling your home, you may be subject to capital gains taxes. However, the IRS offers certain exclusions that you may qualify for as a home seller.

One such exclusion is the primary residence tax exemption, which, if you meet certain requirements, you can exclude $250,000 from the sale of your home. That number increases to $500,000 if you’re married and filing jointly.

For such an exclusion, you’ll have to meet these qualifying criteria . . . 

  • You must have owned the home for at least 2 years in the past 5 years prior to the sale. The ownership doesn’t have to be continuous. If you’re married and filing jointly, only one spouse needs to meet this requirement.
  • The home must be your primary residence for at least 2 of the 5 years before selling. Both spouses must meet this requirement for joint filing.
  • You have not sold another home for two years prior to the sale, or — if you did — you didn’t take the exclusion of gain earned from it.

If you meet these requirements, you may qualify for the tax exemption and, therefore, get to keep more money in your pocket from the sale of your home if you choose to sell.

Special Circumstances

Even if you do not meet the above criteria, you may still be eligible for a full or partial exemption when selling your home in Florida. There are special qualifying circumstances, such as…

  • Taking ownership of the home during a separation/divorce
  • If your spouse passed away during you owning the home
  • Owning a “remainder interest” in the home when selling
  • Having your previous home condemned
  • Being a service member while owning the home
  • Exchanging the home in a “like-kind” exchange

Calculating Capital Gains Tax

When selling your property and planning to calculate potential capital gains tax, determining the cost basis of the home is crucial. The cost basis comprises the initial purchase price of the property and any expenses incurred on improvements over time. For example, if you bought a property for $300,000 and invested $50,000 in upgrades, your cost basis would be $350,000.

Next, factor in the purchase price of the property, deducting specific fees like closing costs and real estate agent commissions. Finally, subtract the cost basis from the sale proceeds to ascertain the capital gains amount subject to taxation.

Get Professional Assistance

If navigating the intricacies of capital gains tax seems overwhelming, you’re not alone. Selling your home is a significant financial transaction, so it’s wise to seek advice from a tax professional and a seasoned Florida investor. Together, we can simplify the process and ensure you achieve the optimal results when selling your property. If you’re worried about the tax consequences of selling your home in Florida, feel free to reach out to us at (754) 714-7497.

Get More Info On Options To Sell Your Home...

Selling a property in today's market can be confusing. Connect with us or submit your info below and we'll help guide you through your options.

Get An Offer Today, Sell In A Matter Of Days👇🏼

  • This field is for validation purposes and should be left unchanged.