Taxes when you sell a Florida property

What tax do I pay when I sell in Florida?

No state income tax on the gain — Florida has none. What you pay is federal, and how much depends on how long you held it and what you did with it.

On top of the long-term rate, higher earners also pay the 3.8% net investment income tax. And if the property was a rental, the depreciation you claimed is recaptured at up to 25% — the item covered in question 4, and the one that catches investors.

What Florida does charge on the transaction is the documentary stamp tax on the deed — $0.70 per $100 of the price statewide, and in Miami-Dade $0.60 per $100 plus a $0.45 surtax that does not apply to single-family homes. Customarily the seller pays it. It is a transfer tax, not an income tax, and you owe it whether you made a profit or not.

How is the gain actually calculated?

Sale price, minus selling costs, minus your adjusted basis. The basis is where most people leave money on the table.

Your adjusted basis is what you paid, plus what you spent improving it, minus any depreciation you claimed:

The $250,000 exclusion — do I qualify?

If it was your primary residence for at least two of the last five years, you can exclude $250,000 of gain if single, $500,000 if married filing jointly.

The rules are precise and worth reading against your own situation:

• Two of the last five years, and they do not have to be consecutive.
• You must have owned and used it as your main home — both tests.
• You can generally only use it once every two years.
• For a married couple, only one spouse needs to meet the ownership test, but both must meet the use test to get the full $500,000.

There are partial exclusions for a sale forced by a change of employment, health, or other unforeseen circumstances, prorated by how much of the two years you completed.

What is depreciation recapture, and why does it surprise people?

The depreciation you deducted every year while renting the property is added back when you sell, and taxed at up to 25%. Depreciation defers tax — it does not erase it.

Residential rental property is depreciated over 27.5 years. On a building basis of $280,000 that is roughly $10,180 a year of deduction — real money against your rental income while you hold it.

On sale, that accumulated depreciation is recaptured. After five years of renting, about $50,900 of your gain is taxed at the recapture rate rather than the long-term capital gains rate.

What if I am not a U.S. person?

Then a different rule runs the whole sale: the buyer withholds 15% of the sale price — not of the gain — and sends it to the IRS at closing. On a $600,000 sale that is $90,000, whether you made $200,000 or lost money.

It is called FIRPTA, the buyer is the one legally required to do it, and it is not negotiable at the table. Most of it comes back; the question is whether you wait a year for it, and that depends entirely on what you do before you list.

A foreign owner is also facing a second thing that has nothing to do with the sale and does not appear at closing: a U.S. citizen passes $15,000,000 free of estate tax, and a non-resident foreign owner passes $60,000.

Can I defer the tax with a 1031 exchange?

If it was investment property, yes — and the deadlines are absolute.

• Investment or business property only. Not your home, not a second home you use personally.
• 45 days from closing to identify replacement properties, in writing.
• 180 days from closing to complete the purchase.
• A qualified intermediary must hold the proceeds. If the money touches your account, the exchange is dead.

The intermediary has to be engaged before you close the sale. This is the most common way a 1031 fails — the seller closes, receives the funds and then asks about an exchange, at which point there is nothing to be done.

A 1031 defers both capital gains and depreciation recapture, and can be repeated indefinitely. It does not eliminate the tax; it moves it to the next sale.

What should I do before I list?

Four things, all of them cheaper before the sale than after.

1. Assemble your basis. Purchase settlement statement, and receipts for every capital improvement. This is the one number entirely within your control, and every documented dollar reduces the gain.
2. Check the two-out-of-five test if the property was ever your home. If you are close to the line, the timing of the sale is worth real money.
3. If you are a foreign seller, start the FIRPTA conversation now. The withholding certificate is a pre-closing action, not a post-closing remedy.
4. If you are reinvesting, engage the intermediary before closing. Not the same week — before.