Tax Tips When Selling a House In Florida

Yes, taxes are boring we know BUT what’s not boring is selling your home at a profit and NOT paying any taxes. In this article we’ll explain just how to do that and it’s super simple. A lot will depend on whether you lived in the home as a primary residence but keep reading to see if you’d qualify. In general, there are up to 3 types of taxes, such as Capital Gains tax in Florida, that you may owe and we’ll cover what they are and what the amounts could be. 

Keep reading if you want to see if you qualify to pay zero tax on the sale of your Florida home. If you’re a regular homeowner selling their primary residence the next section will be extremely relevant and will contain all you need to know. If you’re selling an additional property to your primary residence you can read on where we’ll cover some of those tax implications. You can still keep reading even if you’re selling your primary residence and might as well fill out a form and receive a no obligation quote for an offer as is from us.

Again we are not tax nor legal professionals and each individual should consult a certified professional about their circumstances. This article is solely for educational purposes and shall not be construed as legal or tax advice.

How much tax do you have to pay when you sell a house in Florida?

Hopefully you qualify to pay ZERO taxes when you sell your Florida house, but exactly how much you might need to pay in taxes will depend on a few factors.  Taxes are an important component of your sale and can have a big impact on what you walk away with from a sale so we want to be sure we’ve calculated these things upfront. We’ll break things down into 2 categories (1) home that is your primary residence (2) not a primary residence.

• Primary residence – this means the property you live in and must hold title to the house in your name. So as long as you’ve occupied the home as your primary residence for at least 2 out of the last 5 years, then you’d be eligible to pay ZERO capital gains taxes on the gains of your sale all the way up to $250,000 ($500,000 if married). The 2 years also don’t need to be consecutive. You will still need to pay any unpaid property taxes but that’s all.
• Not a primary residence – this will trigger the capital gains taxes, in addition you’ll need to pay the property taxes and income taxes if it was a rental property. 

Quick summary. If this is the only home you own and you’re living in it you’re exempt from paying capital gains taxes on the sale profits. If this home was not the primary home you live in you’ll need to pay capital gains taxes, property taxes, and tax on the rental income.

The Three Types of Real Estate Taxes in Florida

• Capital Gains Taxes (state vs. Federal)
  • Florida does not have state taxes, so the only capital gains taxes you might need to pay would be Federal capital gains taxes which will vary based on your annual income and the length of ownership. Capital gains taxes are further broken down into (1)  short term capital gains taxes and (2) long term capital gains taxes. 
• Local Property Taxes that may be owed
  • In Florida, property taxes are paid in arrears (after the fact) which means that you’ll likely need to pay these property taxes at closing. The due date varies based on the county and will be prorated to the date of closing by the closing attorney.
• Income Taxes on a Rental Property (State vs. Federal)
  • In Florida there is no state income tax which means if you rent a Florida property you only would need to pay Federal income tax on the profits from that rent income.

Capital Gains Tax On Florida Real Estate

This is the one people always have the most questions about so lets answer some of the frequently asked questions 

• Question: How much is capital gains tax in Florida on real estate?
  • Answer: You’d only pay Federal capital gains taxes. But If it’s your primary residence 2+ years and the profits from the sale are less than $250,000 ($500,000 if married) you’d pay $0 in capital gains taxes. If it’s not your primary residence of 2+ years then you’ll pay either short term capital gains (the % will be based on your annual income)  or longer term capital gains (Less than $40,400 = 0%  $445,850 – $40,401 =15%, $445,851+ = 20%).
• Question: How do I avoid capital gains tax on real estate in Florida?
  • Answer: You won’t pay capital gains tax on a Florida primary residence of 2+ years. Another option is to do a 1031 exchange with the sale.
• Question: How long do you have to live in a house to avoid capital gains in Florida?
  • Answer: You’d need to live in the house for at least 2 years + it must have been within the last 5 years. But it does not need to be consecutive years or even consecutive months of time.
• Question: What are the rules for capital gains in Florida?
  • Answer: Whether you pay short or long term capital gains in Florida is based on how long you’ve owned the property. If you’ve owned it less than 1 year, it’s short term capital gains. If you’ve owned it for 1+ years it would be long term capital gains. 
• Question: How do I avoid capital gains tax when I sell my house?
  • Answer: Own the property in your individual name and make it your primary residence for at least 2 years out of the last 5 years. Basically, own it and live in the house for 2+ years.
  • Pro Tip: If you can’t totally avoid the taxes try to hold the property for 1+ years to reduce the Capital gains tax on florida investment property.
• Question: How much is capital gains tax on residential property?
  • Answer: It’s the same for residential property or any type of property. The type of property will not matter. So it would be the same as above.

How do you calculate capital gains tax on a FL property?

This will depend if we’re talking about (1) short term capital gains or (2) long term capital gains. 

Short term capital gains taxes 

These will apply if the house was sold within 1 year and it’s treated as ordinary income, which will be taxed depending on your annual income. 

Long term capital gains taxes 

These would apply if the house was sold after 1 year and would be taxed at either 0% , 15% or 20% and would be based upon the amount of the long term capital gains. 

• 0% = Less than $40,400 of profits from the sale
• 15% = $445,850 – $40,401 of profits from the sale
• 20% = $445,851+ of profits from the sale

Let’s run through a quick example: Taxpayer Tom has just sold his Florida home that he purchased on January 1, 2019 as a primary residence for $200,000. We’ll assume no money was spent on the house whatsoever and in 2022 he sold the house for $350,000.

• How much is Taxpayer Tom’s capital gains tax liability ?
  • If you said $0 then you’ve been paying attention. Tom sold the house for a profit of $150,000 ($350,000 – 200,000) and since it was his primary residence for 2 years and the profit was under $250,000, Tom does not need to pay any Federal capital gains taxes and there are no Florida capital gains taxes. 
• What if this was not the primary residence for Taxpayer Tom and he owned it for the same time frame ? 
  • He’d owe $22,500 (15% * $150,000 profit)  in capital gains taxes for this specific sale. 

What are Ways To Minimize, Defer, Or Avoid Federal Capital Gains Tax On A FL Property?

Create a Numbered List of Items:

1. Do a 1031 exchange: This is when the proceeds from the sale of a property are “rolled” into the purchase of another like kind property (just means other real estate). So, you’re able to delay paying the taxes from the sale of one property and put those proceeds towards the purchase of another property. There are strict rules that must be followed including things such as using a qualified escrow officer to manage the proceeds.
2. Offer Seller financing: Structuring an installment sale, meaning a portion of the money up front at closing and the remainder paid out overtime would allow you to be taxed only at the time of each payment.
3. Step up your basis: Here you can make improvements to the property that will increase your basis in the property. Think of basis as the amount of money that you’ve put into the property.
4. Adjust your sales price: Although not a common thought, there are a few situations where it might just make more sense to lower the sales price so the profit from the sale does not trigger a higher tax liability but that would be very rare.
5. Purchase in an opportunity zone: The government has identified certain geographical areas across the US that are deemed “opportunity zones.” Check out the opportunity zone map for your current home to see if it would qualify. If you own the home for 7+ years there are large tax benefits.

How Much Is Property Tax in Florida

• Answer: 
  • Answer all the types of local taxes that are common in Florida. Clearly they have county taxes, but also mention and drop VERY specific local municipalities that may also charge taxes. Those local names will help us. Be gratuitous.
  • Include: OUTBOUND LINK
    • This page will give the article good link authority:
      • https://floridarevenue.com/pages/default.aspx 
      • https://smartasset.com/taxes/property-taxes 
      • https://www.zillow.com/home-values/2964/miami-dade-county-fl/ 
  • Create a table listing all Counties & the effective Tax Rate (explain the concept of effective tax rate). Use Smart Asset & Zillow as the citation/source.

• What is the Homestead Exemption and how does that work? 

The homestead exemption in Florida allows you to lower the amount you have to pay in property taxes per year. This tax break can only be used if this is your primary residence. There are also additional protections that come along with a homestead exemption.

How Do I Calculate Property Taxes That will be due when I sell?

We’d recommend letting the attorney at the closing to calculate them for you as it can be a little complex. Either way the taxes are removed from the proceeds in the sale and no matter who or when you sell to they are not going to change and will need to be paid. So, for most Sellers we just tell them to expect to pay the prorated amount of taxes that are due. If you still would like to see how much your Florida property taxes will be when selling the home you can visit your county tax assessor’s website and search your property address. It will tell you how much is owed or what the current year taxes will be and is based on the local Florida property tax rate.

What if I prepaid my property taxes?

Don’t worry if someone has pre paid their house taxes in Florida, it’s important to bring that receipt to closing to make sure the title attorney can calculate the pro ration that should be credited back to you at closing.

Taxes on Investment & Rental Properties In Florida

In general, an investment property that is occupied by others for rent whether short or long term is only taxed on the profits made from the renting. Luckily for us in Florida there are no state taxes owed for any rental property income, but of course there are federal taxes due on any profits from the renting. Its important to note the taxes are on the profit not the total rent amount and certain improvements and expenses can be deducted from your taxes. Owning the property as a rental property would also allow you to depreciate the property which could help you save money in taxes. Outside of federal taxes on the profit from the rental, if you’re running a short term rental it’s like a sales tax and maybe even additional taxes depending on the county will need to be paid. This has been more common with Florida establishing itself as a leader in transient rental accommodations.

Will I Owe Taxes if I sell an inherited property in Florida?

Yes, you’d need to pay Federal Income Taxes on the gain of the sale. The gain would be the same gain that person whom you inherited the property from would have paid. Essentially, the person who inherited the property would step into the shoes of the now deceased person. The taxes would only be due if the inherited home gets sold, no taxes need to get paid if you inherit the property and do not sell it.

• I will Link to Inherited property EAC: Use anchor text: “selling an inherited property”

Conclusion

Hopefully this article answered all your basic questions about taxes you might need to pay when selling a house in Florida. We encourage you to seek out a qualified accountant or attorney to validate this information based on your specific situation and, once you’re ready to sell, to fill out a form below and let us make you an offer on the property. While we do not pay the property taxes, we do pay all the other fees such as the transfer tax fees (up to 2% of the sale price). So, if you dont sell to us you might get stuck paying a few additional taxes we didn’t cover in this article but that also are paid when a house is sold in Florida.