Capital Gains Tax on Real Estate in Florida
Understand the federal tax implications when selling Florida real estate. This guide covers how your taxable gain is determined and legal ways to reduce what you owe.
When you sell a piece of real estate for more than you paid, the resulting profit is known as a capital gain. This gain represents the financial benefit realized from the property’s appreciation over time. The federal government treats this profit as income, subjecting it to taxation. The tax applies to various types of real estate, including primary residences, vacation homes, and investment properties.
Federal vs. Florida Capital Gains Tax
A financial consideration for property owners in Florida is the state’s tax structure. Florida is one of the few states that does not impose a state-level income tax on individuals. Consequently, when you sell real estate, there is no separate Florida capital gains tax. This lack of a state-level tax does not, however, eliminate the seller’s tax obligations entirely. All Florida residents and owners of Florida property are still subject to federal capital gains tax rules levied by the Internal Revenue Service (IRS).
Calculating Your Federal Capital Gains
The formula for determining your capital gains tax is the property’s selling price minus its adjusted basis. The adjusted basis begins with the original purchase price of the property and includes certain closing costs from the time of purchase, such as title insurance and recording fees. This initial figure is known as the cost basis.
The adjusted basis is then modified by events that occur during your ownership. Capital improvements, which are investments that add value to the property or extend its life, increase your basis. Examples include adding a new roof or remodeling a kitchen. These are distinct from routine repairs and maintenance, which are not added to the basis. Conversely, depreciation taken if the property was used for rental or business purposes can decrease your basis.
The length of time you own the property is a determining factor in how the gain is taxed. A long-term capital gain results from selling a property held for more than one year. These gains are taxed at federal rates of 0%, 15%, or 20%, depending on your total taxable income. A short-term capital gain applies to property held for one year or less, and this profit is taxed at your ordinary income tax rate.
Exclusions and Deferrals for Real Estate
Homeowners may be able to reduce their federal tax liability through the primary residence exclusion, also known as the Section 121 exclusion. For a single individual, up to $250,000 of gain can be excluded, and for a married couple filing a joint tax return, the exclusion amount doubles to $500,000. To qualify, you must meet both an ownership test and a use test. These tests require that you have owned the home and used it as your main residence for at least two of the five years immediately preceding the date of sale.
For those who own real estate as an investment, a 1031 exchange offers a path to defer capital gains taxes. This allows an investor to sell one investment property and reinvest the proceeds into a “like-kind” replacement property. This is a deferral, not a permanent exclusion; the tax will eventually be due when the replacement property is sold, unless another exchange is initiated. The rules require the replacement property to be identified within 45 days of the sale and the purchase to be completed within 180 days.
Reporting and Paying the Tax
Once your final taxable gain is calculated, the profit must be reported to the IRS. This process involves specific tax forms filed with your annual federal income tax return, Form 1040. The primary form for this purpose is Form 8949, Sales and Other Dispositions of Capital Assets. On this form, you will detail each property sale, including the dates of acquisition and sale, the sales price, and the cost basis. The totals from Form 8949 are then transferred to Schedule D, Capital Gains and Losses.
Some taxpayers may also be subject to an additional tax known as the Net Investment Income Tax (NIIT). This is a 3.8% federal surtax on investment income for individuals, estates, and trusts with income above certain thresholds. For 2025, these thresholds are $200,000 for single filers and $250,000 for married couples filing jointly. If your modified adjusted gross income exceeds these amounts, the 3.8% tax applies to the lesser of your net investment income or the amount your income exceeds the threshold.