This is a common question for many homeowners looking to sell their homes. The answer is that it depends.
This short article is a valuable resource for homeowners in Florida considering a property sale. It sheds light on capital gains tax liabilities and exemptions, offering clarity on how to determine taxable gains when selling your home.
Please keep in mind that we are not accountants or CPA’s, we’re just writing from our own knowledge and experience. So make sure to consult with a licensed CPA to truly understand what your unique tax liabilities might be when selling your home.
The tax laws are constantly changing, so here are the most up-to-date tax laws regarding selling a home.
Since 1997, the Taxpayer Relief Act issued by Congress exempted most US citizens from paying capital gain taxes on the sale of their home up to a specific limit if it was their primary residence and they occupied it for at least two years.
This does not apply to citizens who have renounced their citizenship or residents.
What’s the threshold limit?
As of 2022, the limit you are exempt from paying capital gains taxes per the IRS Publication 523 on selling your home is $250,000 for singles and $500,000 for married couples.
In other words, say you paid $212,000 for your home, including closing costs. And let’s say 2 1/2 years later, you sell it for $300,000 less $24,000 in selling expenses, giving you a net taxable gain of $64,000; that taxable gain would be tax-free!
Here’s how to calculate your taxable gain:
Selling price = The price of the home you sold it for.
Selling expenses = Any fees or direct costs you incurred to sell your home, such as Closing costs, doc stamps, realtor commissions, legal fees, advertising costs, and buyer credits.
Amount Realized = Selling Price – Selling Expenses
Adjusted Basis: This will be the total amount you invested in the home. The IRS allows you to include the following in your basis:
- The amount you paid for your home
- Any settlement fees or closing costs you paid when you bought your home, except for financing-related costs (such as seller-aid points)
- Any real estate taxes or other costs you paid on behalf of the seller you bought your home from (and for which the seller never paid you back)
- Any amounts you spent on construction or other improvements that are still part of your home at the time of sale (not including costs of maintenance and repairs
- Any amounts you spent to repair damage to your home or the land on which it sits, Any special assessments for local improvements (such as special tax or condominium association assessments that aren’t merely for repairs or maintenance)
As you can see, a lot goes into calculating your gains.
The better records you keep, the easier it is to calculate this.
Keep copies of your HUD statements or closing disclosures when you buy and sell your home, and track any improvements you make.
This will save you much time and frustration when tax time comes.
How much Do You Pay if You exceed the Threshold?
So we covered that singles are exempt up to $250,000 and married couples up to $500,000 if it was your primary residence and you lived in the home for two years or more.
If you pass those thresholds, you must pay capital gains taxes for any $ over those amounts.
As of 2023 capital gains tax rate per the IRS, is around 15% for most individuals if their income is:
– equal to or less than $459,750 for a single,
– less than or equal to $517,200 for married filing jointly
– less than or equal to $488,500 for head of household,
-less than or equal to $258,600 for married filing separately.
If you pass those thresholds, it can go up to 20%.
Exemptions To The Threshold Rules
Now, there are some caveats and special instances here for specific individuals, so if you pertain to one of these groups I highly recommend you read the IRS rules on page 4 regarding the elgibility test:
- Separated or divorced taxpayers,
- The death of a spouse occurred during the ownership of the home
- You were a service member during the ownership of the home
- Your previous home was destroyed or condemned
- You acquired or are relinquishing the home in a like-kind exchange.
Final Words
I hope this answers most of your basic tax questions. If you have sophisticated questions we highly recommend you get with your CPA to understand the laws better and properly plan the sale of your home.
If you’re seeking expert assistance in selling your property in Florida, our team is here to help. Contact us for a seamless and informed home selling experience.
We are a local home-buying company that has been a BBB accredited business since 2015 with an A+ rating. To learn more about our team and company check out our site, and if you’re ready to take the next step, contact us today to get a cash offer! If your Florida house qualifies, we can make you a quick and fair cash offer. For more information or if you have any questions feel free to give us a call at (954) 519-7040 or fill out the online form below and we will get in touch with you ASAP.