How Not to Pay Taxes When Selling a House in Florida
So How Not to Pay Taxes When Selling a House in Florida? Is it even possible?
In the article, we go into very specific detail on this topic and the other Tax options and Benefits available on real estate sales and holdings in Florida.
Florida tends to be a very friendly state for real estate ownership. The IRS also favors ownership in real estate so as long as you know the path to “How Not to Pay Taxes When Selling a House in Florida.”
So How Not to Pay Taxes When Selling a House in Florida? Is it even possible? Well, in the article, we go into very specific detail on this topic and the other Tax options and Benefits available on real estate sales and holdings in Florida.
Before we go into these specifics, I will provide a personal story of mine that may give some clarification and motivation to do this or even sell your Florida homestead!!
**Please note that I am NOT a real estate attorney, CPA, or accountant. This is for informational purposes only. I am a real estate broker and investor in Florida and have participated in some of these tax strategies when selling or owning real estate in Florida.
Now… Let’s dive into my first personal story on How Not to Pay Taxes When Selling a House in Florida.
I Made $30,000 Tax-Free Selling My Primary residence in Florida!
I got into real estate at 21 years old. I read about How Not to Pay Taxes When Selling a House in Florida, specifically 26 U.S. Code § 121 – Exclusion of gain from sale of principal residence.
I couldn’t wrap my head around it until I talked to another seasoned real estate agent in my office. She had a client who allegedly never filed tax returns over a 14-year period… I was like, is he in jail? She laughed…
She explained that he buys and then resells his primary residence every two years, and she helps him do both every time. She explained that he doesn’t pay taxes on the sale of his primary residence in Florida due to his gain. He then lives on the gains and then repurchases a new primary residence. She said the key here is that he tries to buy in the same price range that he was in. He doesn’t live above his means.
This was my first house…
My Tax-Free ‘Ah Ha’ Moment of Not Paying Taxes on the Sale of My House in Florida
I was like… I’m going to do that to make money in real estate!! At the time, I was a college student living off Ramen Noodle soup and $4 pizzas on Tuesdays at a local pizza joint. I knew I wanted to make it in real estate but not just as a real estate agent.
I wanted to grow my wealth! About a year and a half later, I saved up 3.5% down and bought a house using an FHA loan. I got the seller to “contribute 3% toward my closing costs.” At the time, the house was priced around $130,000. So, I only needed to come up with about $4,500…
I scraped more cash from working side jobs to fix it up with new flooring, landscaping, paint, etc. I also house hacked renting rooms to some college friends. 2 years later, I did not pay taxes when I sold my first house in Florida!!
I was hooked. I did it again and again and again. Even though we buy and sell properties throughout Florida, I will still flip my primary residence in Florida for a tax-free gain (Just not as frequently as I once did).
Get An Offer Today, Sell In A Matter Of Days
All The Ways on How Not to Pay Taxes Owning Real Estate in Florida
There are multiple ways on How Not to Pay Taxes Owning Real Estate in Florida both in terms of selling for a gain, holding it, and reducing real estate taxes.
The first way to know How Not to Pay Taxes Owning Real Estate in Florida, is to know if your home sale qualifies for the exclusion of the gain.
Does Your Florida Home Sale Qualify for the Exclusion of Gain?
The tax regulations acknowledge the significance of owning a Florida home by providing an opportunity to exempt the profit from the sale of your primary residence. To be eligible for the highest gain exclusion (up to $250,000 or $500,000 for married couples filing jointly), you need to satisfy the criteria outlined in the Eligibility Test.
Am I Eligible For Not Paying Taxes on the Sale of My House in Florida?
If you owned the home and made it your primary residence for a minimum of 24 months within the last 5 years, you fulfill the residence criterion. The 24 months of residency can occur at any point within the 5-year timeframe and need not be continuous. The only stipulation is a cumulative total of 24 months (730 days) of residency during the 5-year period. In contrast to the ownership condition, both spouses must individually satisfy the residence requirement for a married couple filing jointly to qualify for the complete exclusion.
There are many Exceptions to the Eligibility Test that you can review on the link directly from the IRS website that I will not bore you with.
So, for example. Let’s say you are a single person and bought a house for $250,000 and lived there for 24 months, and sold it month 25 for $350,000; your gain of $100,000 (Not including closing costs to renovation) has no taxable consequences! Beautiful thing huh?!
The next way to figure out How Not to Pay Taxes When Selling a House in Florida is via a 1031 Exchange, but this is for investment property or business.
**As mentioned, be sure to speak to an accountant**
Defer Paying Taxes on Your Florida Investment Property
In broad terms, a 1031 exchange, also known as a like-kind exchange or Starker exchange, involves swapping one investment property for another. While most property swaps are typically taxable, if your exchange satisfies the criteria of a 1031 exchange, you may experience either no tax or a limited tax liability at the time of the transaction.
Essentially, according to the IRS perspective, this allows you to alter the form of your investment without triggering a capital gain or cashing out. This arrangement permits your investment to persist in growing on a tax-deferred basis. Importantly, there is no restriction on the frequency of 1031 exchanges. You can continuously roll over gains from one investment property to another, enabling your investment to accumulate without immediate tax obligations. Although each exchange may generate a profit, taxes are deferred until you eventually sell for cash, potentially resulting in a single tax payment at a long-term capital gains rate (currently 15% or 20%, depending on income, with some lower-income taxpayers paying 0% as of 2022) if the strategy unfolds as intended.
Reduce Your Real Estate Taxes in Florida with This
So, how can you reduce your real estate taxes on property you own? Well, by using the Florida Property Tax Exemption for Homestead Property.
If an individual owns a property and designates it as their primary residence or the primary residence of a dependent, they may qualify for a homestead exemption of up to $50,000. The initial $25,000 is applicable to all property taxes, encompassing school district taxes. The extra exemption, ranging up to $25,000, applies to the assessed value between $50,000 and $75,000, but solely for non-school taxes (refer to section 196.031, Florida Statutes).
Florida Homestead Property Exemption
The homestead exemption application, Form DR501, and other exemption forms, can be found on the Department’s forms page and most property appraisers’ websites. Submit your homestead application to your county property appraiser to initiate the process.
For first-time filers, prepare to provide answers to the following questions:
- Whose name or names were on the title on January 1?
- What are your and your spouse’s social security numbers?
- Were you or your dependent(s) residing in the dwelling on January 1?
- Do you claim residency in another county or state?
When proving residency, your property appraiser may request the following items:
- Proof of previous residency outside Florida and the date it ended
- Florida driver’s license or identification card number
- Evidence of relinquishing a driver’s license from another state
- Florida vehicle license plate number
- Florida voter registration number (if a US citizen)
- Declaration of domicile and residency date
- Name of current employer
- The address listed on your last IRS return
- Dependent children’s school location(s)
- Bank statement and checking account mailing address
- Proof of payment of utilities at the homestead address
How Not to Pay Taxes When Selling a House in Florida (Example of Florida Homestead Property Exemption)
Here is an example on How to reduce Paying Real Estate Taxes When Selling a House in Florida
Assessed Value $45,000:
- The initial $25,000 in value is exempt from all property tax, while the remaining $20,000 is taxable.
Assessed Value $65,000:
- The first $25,000 of value is exempt from property tax, the subsequent $25,000 is taxable, and the remaining $15,000 is exempt from nonschool taxes.
Assessed Value $85,000:
- The initial $25,000 value is exempt from all property taxes, the next $25,000 is taxable, the third $25,000 is exempt from non-school taxes, and the remaining $10,000 is taxable.
Save Your Property From Increased Property Taxes with This (Save Our Homes)
After the initial year a residence qualifies for a homestead exemption and is appraised at its fair market value by the property appraiser, subsequent annual assessments are subject to a limitation.
The assessment for each subsequent year cannot exceed a 3 percent increase or the percentage change in the Consumer Price Index (CPI), whichever is lower. This restriction, known as the “Save Our Homes” (SOH) assessment limitation, is outlined in section 193.155 of the Florida Statutes.
The cumulative variance between the assessed value and the fair (market) value constitutes the SOH benefit.
It’s important to note that even if the overall value of your home experiences a decrease, the assessed value may still see an increase, albeit restricted to the specified limit. Consequently, the assessed value will never surpass the fair value of your home.
This is a fantastic option, especially for those living in Florida on a fixed income!
Transfer Your Real Estate Tax Savings in Florida with This (Portobility)
If you are relocating from a previous homestead in Florida to a new one, there is a possibility to transfer, or “port,” a portion or all of your homestead assessment difference. Portability, if eligible, allows most Florida homestead owners to shift their Save Our Homes (SOH) benefit from their former homestead to a new one, reducing tax assessment and, consequently, lowering taxes for the new property.
To avail of the SOH benefit transfer, it is essential to establish a homestead exemption for the new home within three years of January 1 of the year in which you abandoned the old homestead (not three years after its sale). The Transfer of Homestead Assessment Difference (Form DR-501T) must be filed along with the homestead exemption application, and the deadline for submitting these forms is March 1.
All required forms and applications for the exemption should be completed and filed with your county property appraiser. In case of application denial, you have the option to file a petition with the county’s value adjustment board.
In the event of a change in ownership for a homestead property protected by the SOH cap, the property will lose the SOH benefit and be assessed at its just value on the following January 1. Florida law defines a change of ownership as any sale, foreclosure, or transfer of legal or beneficial title in equity to any person (see s. 193.155(3), F.S.). Loss or removal of homestead will also trigger a reassessment and removal of the SOH benefit. To avoid penalties, it is important to notify your county property appraiser if there is a change in your homestead status.
Certain changes, however, will not trigger a reassessment, including changes or transfers between spouses, specific transfers upon death, and transfers where the same individuals are entitled to the homestead exemption both before and after the transfer.
Property Tax Benefits for Active Duty Military and Veterans in Florida
If an individual in the Armed Forces possesses and utilizes property as their homestead, they have the option to rent out the homestead property without forfeiting their entitlement to the homestead exemption, as outlined in section 196.061 of the Florida Statutes. In cases where a service member is unable to file for a homestead exemption in person due to a service obligation, their next of kin or any authorized individual with written permission may submit the homestead exemption claim on their behalf, in accordance with section 196.071 of the Florida Statutes.
Qualification for property tax exemptions is contingent upon meeting specific criteria. Pertinent information can be obtained from the property appraiser’s office in the county where the veteran or surviving spouse possesses a homestead or other property.
- An honorably discharged ex-servicemember who is a Florida resident and disabled by 10% or more due to misfortune or wartime service may be eligible for a $5,000 reduction in the assessed value of their property. This exemption applies not only to homesteads but extends to other properties. In certain situations, the veteran’s surviving spouse may be eligible to carry over the exemption. Refer to Form DR-501 for details (see s. 196.24, F.S.).
- Florida resident veterans with an honorable discharge and a service-related total and permanent disability may qualify for a complete exemption from ad valorem taxes on their homesteads. A similar exemption is accessible to disabled veterans confined to wheelchairs. Under specific conditions, the surviving spouse of the veteran may be entitled to carry over the exemption. Refer to Form DR-501 for details (see ss. 196.081 and 196.091, F.S.).
- Veterans aged 65 or older who are partially or totally permanently disabled may receive a discount on the assessed value of their homesteads if they meet certain requirements. This discount is transferable to the veteran’s surviving spouse under conditions such as legal or beneficial title holding, permanent residence, and no remarriage. The discount percentage corresponds to the percentage of the veteran’s permanent, service-connected disability determined by the United States Department of Veteran’s Affairs. Refer to Form DR-501 for details (see s. 196.082, F.S.).
Veterans eligible for these exemptions have the option to apply even before obtaining the necessary documentation from the United States government or the United States Department of Veterans Affairs or its predecessor. Upon receipt of the documentation by the property appraiser, the exemption will retroactively take effect from the original application date. For details on refunds, please refer to the “How to Apply for a Refund” brochure.
Additionally, individuals who are current or former members of any branch of the United States military, military reserves, the United States Coast Guard or its reserves, or the Florida National Guard can qualify for an exemption if they were deployed outside the continental United States, Alaska, and Hawaii in support of a designated operation during the previous calendar year. The percentage of taxable value exempt for the current year corresponds to the percentage of time the service member spent deployed on a designated operation in the previous year. Refer to Form DR-501M for more information (see s. 196.173, F.S.).
All necessary forms and applications for these exemptions should be filed with the county property appraiser. If the application is denied, you have the option to file a petition with the county’s value adjustment board.
Florida Property Tax Benefits for Persons 65 or Older
Individuals aged 65 or older in Florida can access specific property tax advantages.
Meeting specific requirements determines eligibility for property tax exemptions.
Details can be obtained from the property appraiser’s office in the county where the applicant possesses a homestead or other property.
The governing body of a county or municipality has the authority to enact an ordinance permitting an extra homestead exemption of up to $50,000. To qualify for this exemption, an individual must meet the following criteria:
- Own real estate and use it as their permanent residence
- Be aged 65 or older
- Have a household income that does not surpass the specified income limitation.
The board of county commissioners or the governing body of any municipality can pass an ordinance enabling an extra homestead exemption equivalent to the assessed value of the property. To qualify for this exemption, an individual must meet the following criteria:
- Own real estate with a just value below $250,000
- Have maintained it as their permanent residence for at least 25 years
- Be aged 65 or older
- Not have a household income surpassing the specified income limitation.
- Veterans aged 65 or older, who are partially or totally permanently disabled and meet specific criteria, may be eligible for a property tax discount on their homesteads. The discount corresponds to the percentage of the veteran’s permanent, service-connected disability, determined by the United States Department of Veterans Affairs. In the event of the veteran’s passing, the discount transfers to the surviving spouse, provided the spouse holds the legal or beneficial title to the homestead, permanently resides there, and has not remarried.
Property Tax Information for First-Time Florida Home Buyers
When embarking on the journey of purchasing a home, whether it’s your initial foray into homeownership or your first acquisition in the picturesque state of Florida following previous property ownership elsewhere, understanding the intricacies of Florida’s property tax system is crucial. The Sunshine State boasts a unique tax landscape that can significantly impact your financial responsibilities as a homeowner. Thus, acquiring a comprehensive understanding of how the property tax system operates in Florida is paramount for making informed decisions about your new residence.
Florida’s property tax system is distinctive in several ways, featuring considerations such as the homestead exemption and the Save Our Homes assessment limitation. The homestead exemption, a hallmark of Florida’s property tax framework, provides eligible homeowners with a reduction in the assessed value of their primary residence, ultimately lowering their property tax liability. Additionally, the Save Our Homes assessment limitation caps the annual increase in the assessed value of a homesteaded property, offering long-term stability and predictability in property tax expenses.
Navigating through the nuances of Florida’s property tax regulations becomes even more vital for those transitioning from homeownership in another state. Each state has its own set of tax policies, and understanding the variances ensures a seamless adjustment to the tax implications associated with your new Florida home. By delving into the specifics of Florida’s property tax system, you empower yourself to make informed financial decisions, ensuring a smooth and financially sound transition into your new chapter of homeownership in the vibrant and diverse state of Florida.
How Not to Pay Taxes When Selling a House in Florida (Hold, Buy and Sell)
In this article we covered many ways on How Not to Pay Taxes When Selling a House in Florida and included beneficial links throughout. If you have a homesteaded property in Florida and are considering selling and taking advantage of a potential tax-free gain, you can inquire below for a cash offer.
We buy houses, land, and commercial real estate throughout Florida. So, if you are looking to perform a 1031 exchange and need a quick sale or like to take your tax-free profits from your Florida Homestead, let us know!!