It’s almost tax season! Everyone’s favorite time of year!
If you’re looking to sell a house in Florida, you likely have plenty of tax questions that impact whether it’s a good idea to sell or not. Check out a few tax tips below regarding sell your property in the Sunshine state.
For specific questions, consult with a qualified accountant or the state/federal taxing agencies.
Not All Profits Are Taxable: “Capital Gains Tax Exemption”
When selling your house in Miami, you can exclude a high portion of your profits given specific conditions are met. Typically, can exclude $250,000 from your tax return, and up to $500,000 if filing a joint return. (However, if you sell for a loss, you won’t be able to take a deduction for that amount.)
The deduction is only available when selling your primary residence, and can only be used once every two years. To qualify for the deduction, you must have lived in the residence for at least two of the past five years.
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When you sell your home, the capital gains on the sale are exempt from capital gains tax. Based on the Taxpayer Relief Act of 1997, if you are single, you will pay no capital gains tax on the first $250,000 you make when you sell your home. Married couples enjoy a $500,000 exemption. There are, however, some restrictions on this exemption.
In order for the sale to be exempt, the home must be considered a primary residency based on Internal Revenue Service (IRS) rules. These rules state that you must have occupied the residence for at least two of the last five years. If you buy a home and a dramatic rise in value causes you to sell it a year later, you would be required to pay capital gains tax on the gain. This rule does, however, allow you to convert a rental property into a primary residence because the two-year residency requirement does not need to be fulfilled in consecutive years. For example, suppose that you invest in a new condo. You live in it for the first year, rent the home for the next three years and, when the tenants move out, you move back in for another year. At the end of this five-year period, you will be able to sell your condo without having to pay capital gains tax.
If you do not qualify for the “Capital Gains Tax Exemption”, you might still be able to exclude a portion of your profits from your income tax. There are many special conditions you can meet in order to receive a prorated, tax-free gain. If you need to sell because of a change in your health, a job change or other unforeseen circumstances, you will be able to write-off a portion of the profit.
Reporting the Sale For Your Florida Property
You will need to report the sale if you receive a 1099-S form from the closing agent. Form 1099-S is used to report gross proceeds from the sale or exchange of real estate and certain royalty payments. A 1099-S form must be provided to the recipient and a copy mailed or e-filed to the IRS.
This form provides the IRS with information regarding the proceeds from real estate transactions. To avoid reporting, make sure that you are able to exclude all profits. Let the agent know at the time of closing that the form will not need to be issued. Even if you are able to deduct all profits, if the form is issued, you will still need to file it with the IRS… even if no money is owed.
Check out the Form 1099-S here.
Capital Gains Taxes
If you are selling an investment property or house you have only owned briefly, you will likely be subject to the capital gains tax. A capital gains tax is a type of tax levied on capital gains, profits an investor realizes when he sells a capital asset for a price that is higher than the purchase price. Capital gains taxes are only triggered when an asset is realized, not while it is held by an investor.
Capital Gains taxes are dependent on how much you make. If you have a lower income, you will pay no capital gains taxes. People in higher tax brackets can pay upwards of 20%. Short-term assets are typically taxed the same as ordinary income.
First-Time Homebuyer Credit
Depending on the date you bought and sold the Florida house, you might have to pay back all or part of the credit you received. Typically if you move within 36 months of purchasing the home, the credit must be paid back upon the sale of the home.
According to the IRS “The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased in 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.” Special rules apply and can be found in Publication 523 from the IRS.
Deduct Selling Costs
You may be able to deduct any reasonable cost when selling your Florida house. This includes the closing costs, improvements made in order to sell the house, assessments, marketing costs, agent fees. Keep track of every cent you spend in an effort to sell your home. This can amount to big deductions!
No matter what time of the year you sell, don’t forget to seek the counsel of professionals. Consult your accountant and/or attorney to make sure you have set up the best terms for yourself.
Don’t stress too much about taxes when putting your house up for sale in Tampa. Odds are Uncle Sam won’t be getting his hands on your profits.
Thinking About Selling Your House to a Florida Cash Home Buyer? Give us a call (954) 676-1846 or fill out the form below!
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