Florida sellers need to be aware of capital gains.

If you live in Florida and are planning on selling property, capital gains tax could have a massive impact on the profits. That’s because capital gains tax is applied at the federal level to any real estate transaction, regardless of what the state’s rules are around income tax.

But, there are plenty of things that Florida residents can do to reduce this tax or eliminate it altogether when selling a home.

We’ve outlined these tactics below, explaining how each can minimize tax so you can keep more of what you’re owed.

1. Use the Primary Residence Exclusion

There is a sizeable tax break available to anyone selling a primary residence, known as the primary residence exclusion. To qualify, the property will have to be a main home and have been lived in by the seller for two of the last five years.

For those that fall into this category, up to $250,000 of capital gains can be excluded (or $500,000 for married couples filing jointly) from the sale. Given how significant the savings could be if the gains fall within the threshold, sellers should determine if filing jointly is the better option to take advantage of the higher exclusion amount.

2. Understand Short-Term vs. Long-Term Rates

There are different types of capital gains tax rates that sellers need to be aware of before putting a home on the market. The highest rate that is charged is known as the short-term capital gains tax rate and is applied to homes that have been owned for less than a year. Whereas, properties owned for more than a year are taxed at a lower ‘long term rate’.

This means sellers should wait until the one-year mark is reached or should sell in a year when their overall income is lower as a way to reduce earnings and, in turn, any capital gains tax liability.

3. Record Improvements and Expenses

Money put into things like home improvements or renovations could be eligible expenses that when claimed can offset capital gains.

Sellers may also be eligible to write off expenses from the sale of the property, such as legal fees and real estate commission.

However, for either of these deductions to apply, be sure to keep relevant documentation and review the IRS guidelines.

4. Offset Gains with Losses

Investments that have declined in value and are sold at a loss could be applied to offset gains from a property sale. This strategy, known as loss harvesting, is intended to reduce overall taxable income and can come from any type of investment.

However, this strategy can be complex to understand with the IRS having a strict set of compliance rules stating what qualities and where it can be applied.

5. Do a 1031 Exchange

A 1031 exchange defers capital gains tax by allowing the seller to reinvest the earnings into another qualifying property. For the exchange to be processed, sellers need to meet the timelines and rules dictated by the IRS, so planning ahead is critical with this strategy.

If you’re considering selling a property and want to know if any of these tactics can help you save, speak with us at A.P. Accounting & Tax Services.

Our team of trained financial professionals will review your situation, identify any exclusions or deductions that could be applied,and strategize a sale structure that lets you keep more of what you’ve earned.

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