Capital Gains Tax on Sale of Home in Florida

Does Florida have a capital gains tax

No. Florida doesn't tax personal income, and that includes gains on real estate. There is no state return to file for a home sale. The deed doc stamp tax paid at closing ($0.70 per $100 of price in most counties) is a transfer tax on the deed, not a tax on your profit, and you pay it whether you gain or lose money.

If you moved to Florida recently, check whether your former state has any claim. That depends on that state's rules and when you changed residency, so it is a question for a CPA who knows both states.

The federal $250,000 and $500,000 home sale exclusion

Section 121 of the tax code lets you exclude gain on the sale of your main home if you meet two tests in the 5 years before the sale:

• Ownership: you owned the home for at least 2 years.
• Use: you lived in it as your main home for at least 2 years. The two years don't have to be continuous.

A single filer can exclude up to $250,000 of gain. A married couple filing jointly can exclude up to $500,000 if either spouse meets the ownership test, both meet the use test, and neither used the exclusion on another sale in the prior 2 years. A surviving spouse who sells within 2 years of the spouse's death can generally still use the $500,000 limit.

Gain above the limit is taxed as a long-term capital gain if you owned the home more than a year. Federal long-term rates are 0%, 15% or 20% depending on taxable income, and higher earners may also owe the 3.8% net investment income tax on the taxable part.

How to work out your gain correctly

Your gain isn't the sale price minus what you paid. It is the amount realized minus your adjusted basis:

• Amount realized: sale price minus selling costs, such as commission, deed doc stamps and title charges you paid as seller.
• Adjusted basis: what you paid, plus certain closing costs from your purchase, plus capital improvements.

Capital improvements are things that add value or extend the life of the home: a new roof, impact windows, a pool, an addition, a full kitchen remodel. Routine repairs and maintenance don't count. In Florida, owners often spent heavily on roofs and windows to keep insurance affordable, and those receipts reduce your taxable gain. Find them before you sell.

A worked example with the state index: bought at $131,312 in March 2012, sold at $375,361 today. Subtract roughly $2,628 in deed stamps and your other selling costs, add any improvements to basis, and the gain lands under the $250,000 single limit with room to spare. The same math on the statewide condo index ($103,624 then, $262,592 now) shows a paper gain near $159,000.

When you can't use the full exclusion

These are the situations that produce a tax bill on a Florida home sale:

• Second homes and vacation homes. A Florida winter home you never used as your main residence doesn't qualify. The whole gain is taxable.
• Selling before 2 years. You may get a partial exclusion if you moved for a job change, health reasons or certain unforeseen circumstances. Otherwise the gain is taxable, and if you owned the home a year or less it is taxed at ordinary income rates.
• Converted second homes. If the home was a second home before it became your main home, part of the gain tied to that earlier period may not qualify.
• Very large gains. Long-time owners in high-value areas can exceed $500,000. With Monroe County's typical value at $962,885 and Collier at $552,087, that happens more often there than in counties under $300,000.

Timing can change the answer. If you are a few months short of the 2-year use test, waiting to close may be worth more than any price difference you would get by listing today. The test is measured to the closing date, not the listing date, so a contract with a later closing can work. Snowbirds who split the year between Florida and another home should know that the IRS looks at where you actually live most of the time, along with where you vote, bank and register your car, when it decides which home was your main one.

Inherited homes and the stepped-up basis

When you inherit a house, your basis is generally the fair market value on the date of death, not what the deceased owner paid decades ago. If you sell soon after inheriting, the gain is often small or zero. Get a date-of-death appraisal from a licensed appraiser; it is the document your CPA will want.

When a married couple owned the home together, the surviving spouse generally receives a stepped-up basis on the deceased spouse's half in Florida. Combined with the $500,000 survivor rule, that usually leaves little or no taxable gain.

Foreign and Canadian sellers: FIRPTA withholding

If the seller is a foreign person for US tax purposes, the buyer must withhold 15% of the sale price and send it to the IRS under FIRPTA. That is withholding against tax owed, not the tax itself. Withholding drops to 10% or zero when the buyer will live in the home and the price is under $1 million or $300,000. A seller whose actual tax will be lower can apply for a withholding certificate on Form 8288-B, ideally before closing, and then files a US return to settle the final amount.

Canadian owners also report the sale in Canada, with a foreign tax credit for US tax paid. A cross-border CPA should run both sides before you list.

Reporting the sale and what to keep

The closing agent may issue Form 1099-S. If your gain is fully covered by the exclusion and no 1099-S is issued, you may not have to report the sale. If you received one or have taxable gain, it goes on Form 8949 and Schedule D.

Keep the purchase settlement statement, the sale settlement statement, improvement receipts and permits, and proof of residency such as your homestead exemption, driver license and voter registration. This isn't legal or tax advice. Talk to a CPA before listing if any part of your situation falls outside the plain main-home case, and use the net proceeds table on this page for the closing-cost side.