If I Sell My House in Florida Do I Have to Pay Taxes?

Selling a home in Florida involves understanding various tax implications. While Florida does not impose a state income tax on real estate sales, sellers must consider federal income tax obligations and state transaction taxes. This guide clarifies the different taxes and reporting requirements that may apply when you sell your Florida home.

Federal Income Tax on Home Sales

When you sell your home, any profit is considered a capital gain. This gain is calculated as the difference between the selling price and your adjusted cost basis. Your adjusted cost basis includes the original purchase price, certain closing costs, and qualified home improvements. For example, adding a new roof increases your basis, while routine repairs do not.

The Internal Revenue Service (IRS) offers a tax exclusion for primary residences through Section 121. Single filers can exclude up to $250,000 of capital gains, and married couples filing jointly can exclude up to $500,000. To qualify, you must have owned and used the home as your primary residence for at least two of the five years leading up to the sale date. These two years do not need to be consecutive.

You might qualify for a reduced exclusion under unforeseen circumstances, such as a change in employment, health issues, or divorce. The reduced exclusion is prorated based on the portion of the two-year period you met the requirements.

Capital gains are categorized as either short-term or long-term, depending on how long you owned the property. If owned for one year or less, the gain is short-term and taxed at your ordinary income tax rates, which can be higher. If owned for more than one year, the gain is long-term and generally subject to lower tax rates, typically 0%, 15%, or 20% depending on your income. Most home sales fall under the long-term category.

The Section 121 exclusion applies only to your primary residence. If you sell a second home or an investment property, the exclusion does not apply. Any profit from such sales is subject to capital gains tax.

Florida Transaction Taxes

Sellers in Florida encounter specific state and local transaction taxes during the closing process. One such tax is the Documentary Stamp Tax on Deeds, levied on documents transferring real property. This tax is typically paid by the seller and is calculated based on the property’s sale price.

Other documentary stamp taxes and intangible taxes are also part of real estate transactions in Florida. These are usually the buyer’s responsibility when obtaining a new mortgage, such as the Documentary Stamp Tax on Mortgages (calculated per $100 of indebtedness) and an Intangible Tax on Mortgages (assessed per $1,000 of the secured amount).

Property taxes are handled at closing through proration. In Florida, property taxes are paid in arrears, meaning they are paid at the end of the year for the current year’s ownership period. At closing, the seller credits the buyer for the portion of property taxes covering the period they owned the home within the current tax year.

Florida does not impose a state income tax on the proceeds from real property sales. The taxes discussed are transaction-based fees, distinct from an income tax on the capital gain. This absence of state-level income tax on real estate sales can be an advantage for sellers in Florida.

Reporting Your Home Sale

When you sell your home, the transaction must be reported to the IRS, even if you qualify to exclude all or part of your gain. The closing agent, such as a title company or attorney, is typically responsible for issuing Form 1099-S, “Proceeds From Real Estate Transactions.” This form details the gross proceeds from the sale and the closing date.

You will receive a copy of Form 1099-S to use when preparing your federal income tax return. Even if your gain is entirely excludable under Section 121, you generally still need to report the sale if you receive a Form 1099-S.

If you do not receive a Form 1099-S because the sale met certain exclusion criteria, you might not need to report the sale. However, maintaining thorough records of the sale, including the purchase price, selling expenses, and any home improvements, is always advisable. These records are crucial for accurately calculating your adjusted cost basis and any potential taxable gain.

Special Considerations for Certain Sellers

Selling certain types of properties or under specific circumstances introduces additional tax considerations. If you sell a rental property or other investment property, the primary residence exclusion does not apply. Any capital gain from such a sale is generally taxable. If you claimed depreciation deductions, a portion of the gain, known as “depreciation recapture,” may be taxed at a maximum rate of 25%. Any remaining long-term gain is then taxed at standard long-term capital gains rates.

For investors, a Section 1031 exchange, also known as a like-kind exchange, can defer capital gains taxes. This strategy allows you to postpone paying tax on the gain if you reinvest the proceeds into a “like-kind” property. Strict rules and timelines apply to 1031 exchanges, including identifying a replacement property within 45 days and completing the exchange within 180 days.

When a property is inherited, the heir often benefits from a “step-up in basis.” This means the cost basis of the inherited property is adjusted to its fair market value on the date of the previous owner’s death. This adjustment can significantly reduce or even eliminate capital gains tax if the property is sold shortly after inheritance.

If the seller is a foreign person, the Foreign Investment in Real Property Tax Act (FIRPTA) may apply. Under FIRPTA, the buyer or closing agent is generally required to withhold a portion of the gross sales price, typically 15%, and remit it to the IRS. This withholding ensures the IRS collects potential capital gains tax from foreign sellers.