Understanding Capital Gains Taxes on Real Estate Sales
You owe capital gains taxes – the difference between what you paid and what you sold them for – when you sell a stock, bond, or mutual fund. The same is true with selling a Florida home. There are some special considerations, however, you must take into account that are specific to real estate sales.
Please note that this page is for informational purposes only. We are not accountants and cannot give you advice for your personal capital gains taxes. Please talk to your accountant or tax advisor if you want more information on your specific situation
Calculating Capital Gains Taxes on Your Florida Home Sale
Capital gains taxes in real estate are based on an adjusted cost basis, not on what you paid for the home. Getting the amount requires you to make “adjustments” that will include acquisition costs and costs of improvements.
First, you need the purchase price of your home. This is the sale price, not how much you actually paid as part of closing.
Then you need to add adjustments, which will include:
- Cost of the Purchase – transfer fees, attorney fees, inspections, etc., Mortgage costs or points, are not part of this.
- Cost of Sale – inspections, attorney’s fee, real estate commission, and money you spent to fix up your home before its sale.
- Cost of Improvements – room additions, a new deck, a pool, etc. These improvements do not include fixing or replacing something you already had, like a new roof or replacing a furnace.
These items make up the total that is the adjusted cost basis of your home.
Now, subtract the adjusted cost basis from the amount you received when you sold your home.
This is your capital gain on the sale of your home. This explanation is somewhat simplified. However, it is an easy way to help you start looking at this subject.
In actuality, you should consult with your CPA or Tax Advisor for a “comprehensive review” of your particular situation. Plus, there are certain exemptions that may apply for everything relating to taxes.
Special Real Estate Exemptions for Capital Gains Taxes
Since 1997, you can have some capital gain on the sale of a home be exempt from taxation. It is now up to $250,000 or $500,000 for a married couple. For this, you will need to meet the following criteria:
- The home has been your principal residence, that you lived in, for two out of the last five years. The two-year residency need not be “continuous.”
- You have not sold or exchanged another home during the two years before the sale.
- The method of holding title does not matter. The title can even be held in a revocable trust.
Be aware that you may additionally qualify for this exemption if you meet the IRS’s “unforeseen circumstances”, such as:
- Job loss
- Divorce
- Family medical emergency
Military and Foreign Service personal will also get special considerations. Talk with your tax advisor for specific details to see if any of these particular situations apply to you.
Feel free to contact us directly for more information about capital gains taxes or other real estate topics. Our associates are more than happy to help you by answering the questions you may have.