Capital Gains Tax When Selling a Property in Florida

If you're planning to sell a property in Florida, one important consideration is the potential for capital gains tax on the profits from the sale. Capital gains tax is the tax you pay on the profit from the sale of an asset, such as real estate. In this blog post, we’ll walk you through how capital gains tax works when selling a property in Florida, including the basics, exemptions, and strategies to minimize your tax burden.

What is Capital Gains Tax?

Capital gains tax is applied to the profit you make when you sell an asset for more than you paid for it. The "gain" is the difference between the sale price and the purchase price of the property, after accounting for any associated selling expenses, like real estate agent commissions or closing costs.

In the U.S., capital gains are classified into two categories:

Short-term capital gains:

If you sell a property within one year of buying it, any profit is taxed as short-term capital gains, which are typically taxed at your ordinary income tax rate.

Long-term capital gains:

If you hold the property for more than one year before selling, the profit is considered a long-term capital gain and is taxed at a lower rate.

For most taxpayers, long-term capital gains are taxed at either 0%, 15%, or 20%, depending on your income level. The more you earn, the higher the rate you’ll pay on long-term gains.

Capital Gains Tax in Florida: No State Tax

One of the most appealing aspects of selling property in Florida is that the state does not have a state income tax, which means there is no state-level capital gains tax. While you may be subject to federal capital gains tax, you won't have to worry about additional state taxes on the sale of your property.

This makes Florida a popular location for both primary residents and investors looking to buy, sell, and profit from real estate without the added burden of state taxes.

Federal Capital Gains Tax Rates

Even though Florida doesn’t impose state-level taxes, the federal government still levies capital gains taxes on your profits from real estate sales. As mentioned earlier, the rate depends on whether your gain is short-term or long-term.

Short-term capital gains (properties held for one year or less):

Taxed at ordinary income tax rates, which can range from 10% to 37%, depending on your total taxable income.

Long-term capital gains (properties held for more than one year): The rates are generally lower and depend on your income level:

0%: For individuals with taxable income up to $44,625 (single) or $89,250 (married filing jointly) in 2024.
15%: For individuals with taxable income between $44,626 and $492,300 (single) or $89,251 and $553,850 (married filing jointly).
20%: For individuals with taxable income over $492,300 (single) or $553,850 (married filing jointly).

These rates are subject to change depending on future tax legislation, so it's important to check for the most current tax laws when planning your sale.

Exemptions and Deductions for Homeowners

If the property you’re selling is your primary residence, you may qualify for an exemption under the IRS Section 121 rules. This exemption can significantly reduce or even eliminate your capital gains tax liability on the sale of your home. Here's how it works:

Primary residence exemption: If you’ve lived in the property as your primary residence for at least two out of the last five years before selling, you may be eligible to exclude up to:

$250,000 of capital gains if you are single.
$500,000 if you are married and filing jointly.

For example, if you bought your home for $300,000 and sell it for $600,000, your gain is $300,000. If you qualify for the exemption, you won’t have to pay federal capital gains tax on that gain, as long as it falls within the $250,000/$500,000 limits.

Key Points to Remember About the Primary Residence Exemption:

The two-year ownership and use requirement is not necessarily consecutive. As long as you meet the two years within the past five years, you qualify.
This exemption can only be used once every two years.
If you have made improvements to the property (like renovating the kitchen or adding a new roof), these costs can be added to your property's "basis," which may reduce your taxable gain.

How to Calculate Capital Gains on the Sale of Property

To calculate your capital gains when selling a property in Florida, you’ll follow these basic steps:

Determine your "basis": The "basis" is typically the purchase price of the property, plus any improvements you’ve made, and minus any depreciation (if it was a rental property).
- Example: If you bought the home for $300,000 and spent $50,000 on renovations, your basis is $350,000.
Subtract selling expenses: Selling costs, such as real estate agent commissions, closing costs, or home staging fees, are subtracted from the sale price.
- Example: If you sell the home for $600,000 and spend $30,000 on selling expenses, the net sale price is $570,000.
Calculate the gain: The gain is the difference between your net sale price and your basis.
- Example: If your net sale price is $570,000 and your basis is $350,000, your gain is $220,000.
Apply the tax rate: If the property is a primary residence and you qualify for the Section 121 exclusion, you may not owe any capital gains tax. Otherwise, the gain will be taxed at either short-term or long-term capital gains rates.

Strategies to Minimize Capital Gains Tax

If you are looking to reduce your capital gains tax burden when selling property in Florida, consider these strategies:

Take Advantage of the Primary Residence Exemption: Ensure you meet the requirements for the Section 121 exclusion to potentially avoid paying any capital gains tax on the sale of your primary home.
Use Tax-Deferred 1031 Exchange: If the property you're selling is an investment or rental property, you may be able to defer capital gains taxes by using a 1031 exchange. This allows you to reinvest the proceeds into another similar property without paying taxes on the gain at the time of the sale.
Offset Gains with Losses: If you have other investments that have incurred losses, you can offset some of your capital gains through tax-loss harvesting, which involves selling other assets at a loss to reduce taxable income.
Consider Timing Your Sale: If you can, time your sale to avoid falling into a higher tax bracket. For example, if your income is unusually high in one year, you may want to delay the sale to a year when your income is lower.

When selling a property in Florida, understanding capital gains tax is essential for maximizing your profit and minimizing your tax liability. While Florida’s lack of state income tax is a big advantage, you still need to be aware of the federal tax implications.

For primary residences, the Section 121 exclusion can be a significant benefit, and for investment properties, strategies like 1031 exchanges can help you defer taxes. By planning ahead and using the available exemptions and strategies, you can reduce the tax impact of selling your property in Florida.

As always, it’s a good idea to consult with a tax professional or financial advisor to ensure you’re making the best decisions for your specific situation.

A Michigan native, Cyndi and her husband John moved to Florida five years ago after completing a six-year sail around the world on their 46’ sloop “Glass Slipper.”Departing the day after their wedding from Lake Michigan, they covered some 48,000 miles and 54 countries, returning home with an enhanced appreciation of diverse cultures and lifestyles.

Moving to Florida was a natural choice, as they could satisfy their love of being on the water. After looking extensively in SW Florida, they quickly fell in love with the small town feel of Punta Gorda.

Cyndi is a conscientious Realtor who exudes credibility, determination, and commitment. Since receiving her license in 2020, she has completed approximately $23 million in real estate sales. Drawing on her time as a Director in the staffing industry for many years, as well as her world travel experiences, she prides herself on excellent communication skills and a warm and friendly approach.

In addition to enjoying the extended golf and boating season in Florida, Cyndi considers partnering with clients to find their perfect home her latest adventure.