When you sell a stock, bond, or mutual fund, you owe taxes on your gain – the difference between what you paid and what you sold them for. The same is true with selling a Florida home, but there are some special considerations you must take into account specific to real estate sales.
Calculating Capital Gains When Selling your Florida Real Estate Property
In real estate, capital gains are based not on what you paid for the home, but on its adjusted cost basis. Obtaining the amount requires you to make “adjustments” including acquisition and improvements costs.
- Take the purchase price of your home – this is the sale price, not the amount of money you actually contributed at closing.
- Add Adjustments to include:
- Cost of the Purchase – including transfer fees, attorney fees, inspections etc., but not mortgage costs or points, if applicable.
- Cost of Sale – including inspections, attorney’s fee, real estate commission, and money you spent to fix up your home just prior to its sale.
- Cost of Improvements – including room additions, a new deck, a pool etc. “Note:” Improvements do not include repairing or replacing something you already had, like a new roof or replacing a furnace.
- The total of these items is the adjusted cost basis of your home.
- Subtract this adjusted cost basis from the amount you received when selling your home.
This is the total amount of your capital gain on the sale of your home. While the explanation is somewhat simplified, it is a easy way for you to start looking at this subject. In a real situation, you should consult with your CPA or Tax Advisor for a “comprehensive review” of your particular circumstances. And, as with all things relating to taxes, there are certain exemptions which may apply.
Special Real Estate Exemptions for Capital Gains
Since 1997, up to $250,000 in capital gains ($500,000 for a married couple) on the sale of a home are exempt from taxation, if you meet the following criteria:
- You have lived in the home as your principal residence for two out of the last five years. The two year residency test need not be “continuous.”
- You have not sold or exchanged another home during the two years preceding the sale.
- The method of holding title does not matter. Title can even be held in a revocable trust.
Also please be aware, you may additionally qualify for this exemption if you meet what the IRS calls “unforeseen circumstances” such as job loss, divorce, or family medical emergency. Military and Foreign Service personal also get special considerations. Inquire with your tax advisor for specific details regarding these particular situations.
How High are Capital Gains Tax Rates in Your State?
Currently, the United States places a high tax burden on capital gains income. The current federal top marginal tax rate on long-term capital gains in the United States is 23.8 percent (20 percent top rate plus 3.8 percent tax on unearned income to fund the Affordable Care Act). In addition, taxpayers have to pay state and local income taxes on their capital gains income from zero percent in states that do no levy an individual income tax to as high as 13.3 percent in California.
The state with the highest top marginal capital gains tax rate is California (33 percent), followed by New York (31.5 percent), Oregon (31 percent) and Minnesota (30.9 percent).
The nine states with no personal income tax (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming) have the lowest rate in the United States (25 percent).
The average across all states is 28.7 percent.
You’ll need to consult with your CPA or Tax Attorney or Advisor.
This post is just for informational purposes only