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Understanding Capital Gains Taxes

Tax Considerations When Selling Florida Real Estate

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.

Please Note: This page is for informational purposes only. We are not accountants and cannot give you advice regarding your personal capital gains tax situation. Please contact your accountant or tax advisor for more information on your specific situation

Calculating Capital Gains On Your Florida Home Sale

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.

  1. Take the purchase price of your home - this is the sale price, not the amount of money you actually contributed at closing.

  2. 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.
  3. The total of these items is the adjusted cost basis of your home.

  4. 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.

"Special Note:"  Beginning January 1, 2009, new rule changes will go into effect regarding the Captial Gains exclusion for properties used as a rental or vacation home. The new rule will be based on "Qualified"  versus "Non Qualified Use."  You'll need to consult with your CPA or Tax Advisor regarding this change!

For more information on this real estate topic, please feel free to contact us directly. Our associates will be more than happy to assist you in answering any and all questions you may have.

And, please be sure to check out our other Florida home seller information pages. They are full of useful information for buying or selling a Southwest Florida home or condominium.

Capital Gains Taxes on Florida Real Estate Sales - Related Blog Posts:

Congress Amends IRS Rule for Capital Gains Tax on Real Estate

New IRS Ruling for 1031 Exchanges and Vacation Homes

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Page Authored by Benjamin Dona of Gulf Coast Associates, Realtors