There are several benefits open to property investors regarding capital gains tax on real estate in Florida. The state of Florida doesn’t charge capital gains tax on the profit made from property sales because there is no state income tax.
Though there aren’t any Florida capital gains taxes, both residents and non-residents in Florida are subject to federal capital gains tax on property sales.
What Is the Difference Between Long and Short-Term Capital Gains Tax?
Federal capital gains taxes are taxes owed on profits made on the sale of assets; in the case of real estate, this is from the sale of a property. Long-term capital gains tax is charged on properties held for more than 12 months. Short-term capital gains tax is charged on properties held for less than 12 months.
Long-Term Capital Gains Tax
Homeowners who sell their property after more than a year of ownership are liable for long-term capital gains taxes on the profits of the sale. The long-term capital gains tax rate is between 0-20% depending on your income and personal circumstances.
The IRS webpage “Topic No. 409, Capital Gains and Losses” lists the following tax brackets for long-term capital gains.
| For Unmarried Individuals, Taxable Income Over | For Married Individuals Filing Joint Returns, Taxable Income Over | For Married Individuals Filing Separately, Taxable Income Over | For Heads of Households, Taxable Income Over | |
| 0% | $0 | $0 | $0 | $0 |
| 15% | $41,675 | $83,350 | $41,675 | $55,800 |
| 20% | $459,750 | $517,200 | $258,600 | $488,500 |
Short-Term Capital Gains Tax
Property owners who sell property after less than a year of ownership generally pay capital gains taxes at a significantly higher rate because short-term capital gains are taxed as regular income. The marginal income tax rates for 2023 range from 10% to 37% with thresholds determined by your total income and tax filing status.
These are the tax brackets published by the IRS for the tax year 2023:
| Filing Status | 10% | 12% | 22% | 24% | 32% | 35% | 37% |
| Single | Up to $11,000 | $11,001 to $44,725 | $44,726 to $95,375 | $95,376 to $182,100 | $182,101 to $231,250 | $231,251 to $578,125 | Over $578,125 |
| Head of Household | Up to $15,700 | $15,701 to $59,850 | $59,851 to $95,350 | $95,351 to $182,100 | $182,101 to $231,250 | $231,251 to $578,100 | Over $578,100 |
| Married Filing Jointly | Up to $22,000 | $22,001 to $89,450 | $89,451 to $190,750 | $190,751 to $364,200 | $364,201 to $462,500 | $462,501 to $693,750 | Over $693,750 |
| Married Filing Separately | Up to $11,000 | $11,001 to $44,725 | $44,726 to $95,375 | $95,376 to $182,100 | $182,101 to $231,250 | $231,251 to $346,875 | Over $346,875 |
A Florida-based CPA firm like Alpine Mar can advise investors and businesses on how to file taxes most advantageously and make crucial savings on their tax bills, whether they have a single investment property or a large portfolio.
Are Capital Gains Taxes and Property Taxes the Same?
No. While property owners pay capital gains tax on the profits from selling a property, property tax is an annual tax payable for as long as you own a property. Property taxes are calculated and paid locally rather than with your state or federal tax returns. Each county in Florida sets its own property tax rates, but the state average is 0.83%.
The cost of property taxes can be reduced in Florida by using the “homestead exemption” that allows homeowners to reduce their property taxes as long as the house is their permanent residence. This allowance takes up to $50,000 off, meaning that if your home is worth $350,000, your tax bill will be based on a $300,000 value. Please note that only the first $25,000 is exempt from school taxes.
Can You Reduce Capital Gains Tax?
The simple answer to this is yes; as a property owner, it’s possible to reduce state capital gains tax. There may be certain tax breaks pertaining to specific circumstances that are worth exploring.
The Section 121 Exclusion
With the Section 121 exclusion, homeowners don’t pay tax on the first $250,000 of profit from the sale of their home or, if married filing jointly, the first $500,000.
The 1031 Exchange
A 1031 exchange essentially allows owners of rental properties to defer the owed capital gain taxes when they sell one investment property in order to purchase another similar property. This exemption is subject to restrictions; after selling your property, you only have 45 days to find another and must close the deal within 180 days.
Sell at the Right Time
Selling your property at a favorable time can reduce or even eliminate your federal capital gain tax bill. Workers whose earnings fluctuate from year to year will benefit from selling their house in a year with lower taxable income. According to the IRS, you pay 0% long-term capital gains tax in tax years that you make less than $41,675 or $83,350 as a married couple filing jointly.
Do You Have to Pay Capital Gains Taxes If You’re a Non-Resident or Foreign Investor?
Due to the climate and unique fiscal benefits offered by the state, the Florida property market is appealing to foreign investors. Non-residents must abide by the Foreign Investment in Real Property Tax Act which stipulates that buyers withhold 15% of the profit realized from the sale of the property. This law ensures that non-residents pay federal capital gains tax.
Permanent residents in Florida who aren’t US citizens can file their taxes as US income tax residents when they spend 31 days during the current year or 183 days or more in the USA in a three-year period according to the substantial presence test.
Optimize Capital Gains Tax on Properties in FL
Knowing how to get the most out of your tax can help individuals and businesses save on their Florida capital gains tax bills. With the right guidance, people who invest in Florida can sometimes minimize or even eliminate the need to pay capital gains taxes.
Once you have a firm grasp of the tax implications of purchasing properties in Florida, you will be able to invest with greater confidence.
