Selling your home in Miami is an exciting step, but it also comes with some important financial considerations. One of the most frequently asked questions we get is, “Do I have to pay taxes when selling my home?” While the idea of paying taxes when you’re ready to start a new chapter in your life may not sound appealing, understanding the tax rules upfront can help you avoid surprises and minimize your tax bill. Let’s take a closer look at the tax implications of selling your home in Miami, including how capital gains tax in Florida works and what exclusions you may be eligible for.
The Likelihood of Paying Taxes on the Sale of Your Home
If you’ve owned your Miami home for several years, there’s a good chance that its value has appreciated, and you may be looking at a significant profit when selling. This means you could owe taxes on the gain you made. For many homeowners, the question becomes, “How to sell a house in Miami and avoid paying taxes?” Unfortunately, capital gains tax in Florida is a reality for most homeowners who sell their property for more than they bought it.
Capital gains are the profits you make from selling a capital asset like a house. For many people, selling a home results in a taxable capital gain because the property has likely appreciated in value. If you’re asking “Do I have to pay taxes when selling my home?”, the answer is often yes, but there are ways to reduce the amount you owe.
How Capital Gains Taxes Work
When it comes to selling your home, capital gains tax applies to the profit you make on the sale. The IRS considers almost everything you own for personal or investment purposes—like homes, cars, and investments—as a “capital asset.” The capital gain is the difference between the sale price and the original purchase price, adjusted for certain costs like improvements or closing fees.
“A capital gains tax is a tax placed on any profits earned when a capital asset is sold. The IRS considers almost everything you own and use for personal or investment purposes to be a capital asset. These taxes are due on the tax deadline after the asset is sold, and it applies to investments like stocks, bonds, and real estate.”
In Florida, capital gains tax is divided into two categories: short-term and long-term gains. If you’ve owned the property for less than a year, your gain is considered short-term and taxed at your regular income tax rate. However, if you’ve lived in the home for more than a year, it qualifies as long-term capital gain, which is taxed at a preferential rate of 0%, 15%, or 20%, depending on your income and filing status.
How to Avoid Capital Gains Tax in Florida
The good news is that in some cases, you can exclude a portion of the gain from taxes. If you meet certain conditions, you can exclude up to $250,000 of the gain ($500,000 if married and filing jointly) from the sale of your home in Miami. To qualify for this exclusion, the IRS requires you to meet the following criteria:
- Ownership and Use: You must have owned and lived in the home for at least two of the last five years before the sale. The two years don’t have to be consecutive, but they must be within the five-year period.
- Previous Exclusion: You haven’t excluded the gain on the sale of another home in the past two years.
If you meet these criteria, you may be able to avoid paying capital gains tax altogether. For married couples filing jointly, the exclusion increases to $500,000. Keep in mind that if you are selling inherited property with multiple owners in Miami, this tax exclusion can still apply under the right conditions, but consulting a professional is always a smart move.
Special Circumstances
Even if you don’t meet the criteria delineated above, you still may be able to claim a full or partial exception on selling your home in Miami. The special qualifying circumstances here include . . .
- Gaining ownership of the home during a separation/divorce
- If your spouse died during your ownership of the home
- Having your previous home condemned or destroyed
- If you were a service member during your ownership of the property
If any of these special circumstances apply, you may still be able to exclude or reduce your capital gains tax liability.
If you think you may qualify, we’d love to make you an offer. Let our experienced team guide you through the process and ensure you make the most out of your home sale! (786) 400-2628
Calculating Capital Gains Tax in Florida
To calculate your capital gains tax liability, you’ll need to determine the cost basis of your home. This includes the original purchase price of the home, plus any costs you incurred to improve or renovate it. For example, if you bought your Miami home for $300,000 and invested $50,000 in improvements, your cost basis would be $350,000.
When you sell the property, the sale price minus your cost basis equals your capital gain, which will be subject to taxes. You’ll also need to factor in closing costs and realtor fees, which can reduce the amount of the gain.
Get Professional Help with Selling Your Home in Miami
If this capital gains tax business seems complex and complicated, that’s because it certainly is. Selling a home can get complicated, especially when it comes to taxes. Whether you’re wondering about the tax implications of selling your home in Miami, how to calculate capital gains tax in Florida, or whether you qualify for any exclusions, it’s important to consult with a real estate tax advisors and work with experienced Miami investors. We can guide you through the basics to help you arrive at the best outcome when you sell your home. So if you have concerns about the tax implications of selling your home in Miami, We’d be happy to make you an offer. Be sure to contact us at (786) 400-2628 or fill out the form.