What is Capital Gains Tax and When Do I Have to Pay It?

Capital gains are funds realized on the sale of property for a price higher than the purchase price. It is the difference between the buying price and the selling price of the asset. This event triggers a taxable event. There’s no income tax in Florida, but if a seller does make cash from selling a home, it attracts Federal taxes to pay on the turnover. Read on to learn when to pay the tax and how to be exempted from it.

When is a Home Seller Required to Pay Capital Gain?

Capital gains distributions for the previous year are reported to homeowners by the end of January. Any taxes unsettled on profits should be paid by the due period of the income tax return. The capital gains tax rate calculated on a seller’s gain will depend on how a seller holds the title and the total income generated. Capital gains tax applies to citizens and non-citizens alike in Florida.

Many individuals love buying homes in Florida as an investment. When it comes to financial concerns associated with selling property in Florida, many sellers focus on the sale price and real estate agent charges. But then, what they should be focusing on are the capital gain taxes involved in real estate transactions. Capital gain tax can have a tangible impact on the realized profits. A homeowner should keep very accurate records of the expenses with the purchase and sale of the investment and everything in between. This includes an increase and decrease in the asset’s value and travel expenses to visit the property.

Generally, capital gains taxes range around 15 percent for U.S residents living in the State of Florida. But, home sellers who can comprehend long-term capital gains tax rate are as high as 20%. A home seller should note that if the asset was owned for longer than a year, it qualifies as a long-term capital gain. On the other hand, it is labeled to be a short-term capital gain if it was owned for less than a year.

When Does a Seller Qualify For an Exemption?

Despite having capital gains taxes to deal with, there is good news for home sellers in Florida. Real estate capital assets can be exempted from capital gains taxes. However, a seller will need to check if the primary residence qualifies for discounting a significant percentage of the gain from the capital gains tax.

Sellers are exempted from capital gains when selling a primary home that they have dwelled in for over two of the previous five years. Unmarried sellers can qualify for up to a certain amount, while married homeowners can have a more significant amount omitted. This exemption applies to home sellers with a five-year span of ownership. Here is the other common way sellers can qualify for an exemption.

The 1031 Exchange

The other approach sellers can qualify for an exemption is through the 1031 exchange. This happens only when a seller sells real estate property and rolls out the transaction proceeds into a similar kind of investment within three months. It’s also applicable when a seller identifies up to three assets targeted for venture within 45 calendar days of the sale preceding the investment. There’s a charge for the 1031 Exchange, and investors should comply with relevant authorities. You should understand this to realize all the benefits of exemption.

This information is meant to give you a brief understanding of what “Capital Gains” are. For more information on your particular situation, contact you’re CPA. For an estimate on your homes value, go to Contact Us.