We buy houses in Florida. When you think about the financial considerations that come with selling a house in Florida, many people focus on the sale price and real estate agent commissions. But what they might not be thinking about are the taxes involved in a real estate transaction. There are quite a few tax implications that you need to be aware of when selling your home in Florida. Depending on the situation, taxes can have a real impact on your bottom line and profits. We are your local homebuyers in Florida and if you are looking for tax tips for selling a house in Florida, we are here to help! In our latest post, let’s take a closer look at the taxes you need to be aware of to sell your home and dig deeper into how taxes are involved in selling a house in Florida.
Tax Tips For Selling A House In Florida: What You Should Expect
Consider A Tax Accountant In Florida
If you’re going to consider buying or selling property on the open market in Florida, it is probably going to be worth it to meet with a tax accountant who understands real estate in the state. A smart accountant will help you to understand the unique features of your tax situation while also giving you the information you need to understand Florida taxes. While it’s entirely possible that you will end up paying minimal taxes, the few hundred dollars you invest in speaking with an accountant will pay off with peace of mind. Free tip – if you’re self-employed or a business owner, consider using simple accounting templates.
The Three Types of Florida Real Estate Taxes
When it comes to real estate in the state of Florida, there are three types of taxes you’ll want to be aware of. The first is the property tax. All properties in Florida are assessed a taxable value and owners are responsible to pay annual property taxes based on that value. That tax is paid to the local Florida municipality.
The second tax to be aware of is the capital gains tax. This is a tax paid on the profits that you make on the sale of your Florida house.
The third tax to be aware of only applies to a rental property. If you are a landlord and you have a net profit on any rental income, there could be a federal tax on the profit generated from those properties. If you own a short-term rental property, there is also a sales tax that is often charged to the renter but needs to be submitted to the local government.
Now let’s take a closer look at each one of these types of taxes to understand what we need to know when it comes to buying houses in Florida and the taxes involved.
Property Taxes In Florida
Paying property taxes is a good thing for the local economy and community. That money is put towards things such as public schools and city infrastructures such as roads and medical services. So it’s a good thing to remember when you’re concerned about paying them, that they do some good around you.
How property taxes come to be is a local county property appraiser will set the assessed value of your Florida property by January of each year using housing market data from the previous calendar year. Tax rates are not determined by the state but by local municipalities and the owner of the property does not have an effect on the value.
It’s unlikely you’ll be able to get your property taxes down in that year but you can actively reduce the property value, which might have an effect on the future. Property owners who are widows/widowers or disabled veterans can receive a credit against some taxes owed. But for that person to be eligible for the tax credit, the property must be the primary residence of the primary owner and cannot be a rental property or second home.
Florida statures determine how each county goes about assessing property values. You can see that process and its values published in the late summer each year via the county website. You can also find this information on the Florida Department of Revenue website.
It’s important to note that you don’t have to pay property taxes in Florida until March 1. However, if you’d like to, you can start paying them on November 1 of the tax year. For every month that you pay in advance (up to four), you’ll receive a one percent discount on your overall tax bill. So let’s say your property taxes are $5,000. If you were to start paying incrementally in November, you’d save $200 by the time it was paid in full.
Also, if you move to Florida and make your house here your primary residence, you are entitled to a slight reduction in the assessed value of the property (up to $50,000). Also, the assessed value can’t be increased by more than three percent in any given year, per the Save Our Homes Act. All of that will help to reduce your overall property taxes.
Capital Gains Tax In FL
Perhaps the most important tax issue to be aware of when buying or selling a home in Florida is capital gains. Capital gains are defined as the profits you make as a result of a real estate or property purchase. You can think of it as the difference between the original selling price and the final purchase price.
The amount of capital gains tax on your sale depends on various numbers and conditions. They include everything from the condition of the property to whether or not the buyer is a legal resident of the United States. Each different adjusts the percentage. There are also plenty of deductions available, including the fees paid for the origination of the loan application, closing costs, and points paid back on a loan to get a lower rate on the mortgage.
Generally speaking, capital gains taxes are around 15 percent for U.S. residents living in the state of Florida (though there are those who can see a long-term capital gains tax rate as high as 20%). However, it’s possible that you qualify for an exemption.
If the house was the seller’s primary residence for at least two years within the last five years, capital gains are limited to $250,000 for an individual and $500,000 for a married couple.
It’s good to know how to report capital gains taxes as well. You’ll find them on Schedule D of your IRS form. You should note that if the property was owned for one year or less, the owner should report it as a short-term capital gain. If it was owned for longer than a year, it qualifies as a long-term capital gain.
One of the key takeaways from all of this is that it benefits the owner to live in the residence for at least two years before deciding to sell the house. If you do, you will have more time to reinvest the capital gain from the sale of the house.
Taxes On Rental Property In Florida
Plenty of Florida owners are renting out their properties, either as long-term rental units or as short-term vacation spots through companies like Airbnb and VRBO. Regardless of how you do it, it’s critical to remember that almost all rental income is taxable. The IRS does give you a little break on second homes that are rented for 14 days or less, which qualifies as tax-free. But if you go over that limit, you will have to report that rental income and pay taxes. The good news is that you can deduct rental expenses but it can also get a little complicated depending on the type of residence and whether or not the property counts as personal or business.
Your property is considered a business if you use your second home or vacation home for 14 days or less, or less than 10 percent of the days it’s rented in a given year. Your property is considered a residence if you use it for more than 14 days or over 10 percent of the days it’s rented. So if you lived in your Florida vacation house for the entire month of July, you will have passed the 14-day rule. Even if you rent the property out the rest of the year, it is considered a personal residence.
If the property is considered a personal residence, you’ll be able to itemize your deductions such as mortgage interest and property taxes. Of course, you’ll have to portion them out accordingly to the time you lived there compared to the time renters lived there. You just need to divide the number of days rented by the total number of days the house was used.
If the property is considered a business, the numbers change. You may be able to deduct all of the eligible rental expenses as well as deduct losses up to $25,000 in current or future years. You can also recover the cost of the income-generating property by depreciation. Make sure you account for the way this will impact your future profits, which will have an impact on your capital gains tax when you sell.
Florida also imposes a six percent sales tax on any rental property income for periods less than six months as well. This is often referred to as “transient rental accommodations” or “transient rentals” and includes anything from hotel rooms to single-family homes to beach houses. Each Florida county may also impose a local option tax on transient rental accommodations, such as the tourist development tax, convention development tax, tourist impact tax, or municipal resort tax. You’ll want to check with your local county to see what they charge on top of the six percent. Sometimes that is paid directly to the county and sometimes it is reported to the Department of Revenue, so make sure you know the specifics.
U.S. Residents Vs. Non-Residents In Florida
There are some important differences between United State residents and non-residents that you’ll want to remain aware of as well. While everyone is taxed for U.S. income tax purposes, residents are required to report worldwide income to the government while non-residents are only required to report U.S.-sourced income.
United States citizens are always U.S. income tax residents, regardless of where they call home. And usually, anyone who obtains a Green Card will also be taxed as if they are a resident. However, there are also ways that a non-citizen can be taxed as an income tax resident because of The 183 Day Rule. Basically, if you have been physically present in the United State for 183 days or more in any given calendar year, you will be treated as a tax resident.
These might not seem important until you buy and sell real estate and all of a sudden there’s a very large difference between the two. You’ll want to consult a tax accountant or real estate agent in Florida who understands how this works and how it will affect your taxes.
Mortgage Tax Advantages In FL
You should make note of the tax advantage you can receive when you have a mortgage on your Florida house. This can come in handy when trying to figure out your strategy for buying or selling. When you have a mortgage, all interest you pay is tax-deductible and therefore reduces the amount of income that gets taxed. You should also consult with an accounting or tax professional as there are limits and regulations when it comes to what you can claim related to real estate taxes and you don’t want to catch the attention of the Florida Department of Revenue or the IRS.
Sell My House In Florida
Avoid The Taxes By Selling Your FL House As-Is
Now that you know about the taxes involved when trying to sell your house in Florida, it’s a lot of information and a lot to take in. But there is another solution where you can sell your house and avoid these kinds of extra payments. You can sell your house as-is directly to a cash buyer like Florida Cash Home Buyers. We are professional FL home buyers and we offer cash for houses in Florida.
We work with hundreds of Florida homeowners who are looking for ways to sell their homes and save money on taxes. We will buy your house in any condition or situation, even if you’re already dealing with tax or lien issues. We’ll review the details of your house and find time to meet you at the property quickly. We’ll handle all the repairs so you don’t even need to worry about it. Then, we’ll make you a fair cash offer based on the value of the house. Even better, there are no fees you’ll need to deal with beyond that offer.
If you accept, you set the closing date. Then, all you need to do is sign the contract and get your cash. No taxes to deal with and no extra costs to worry about. You can simply move forward with your life and Florida Cash Home Buyers will handle the concerns of the house from here.