No FL state income tax is the good news. The IRS still wants its share. Here's exactly how the Section 121 exclusion, depreciation recapture, and 1031 exchanges work for Florida sellers.
Florida has no state income tax — and that includes capital gains. When you sell a Florida home, you only deal with federal capital gains taxes. This is a significant advantage over states like California (13.3% state rate) or New York (10.9%).
The federal rate depends on how long you owned the property and your total income:
| Holding Period | Tax Type | Rate Range | Notes |
|---|---|---|---|
| Under 1 year | Short-term | 10–37% | Taxed as ordinary income |
| 1 year or more | Long-term | 0%, 15%, or 20% | Based on taxable income |
| Any holding period | NIIT surcharge | +3.8% | Single income >$200K / MFJ >$250K |
IRS Code Section 121 is the most powerful tool available to homeowners. It lets you exclude up to $250,000 (single) or $500,000 (married filing jointly) of capital gain from taxation — completely tax-free.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $48,350 | $48,351–$533,400 | Over $533,400 |
| Married Filing Jointly | Up to $96,700 | $96,701–$600,050 | Over $600,050 |
| Head of Household | Up to $64,750 | $64,751–$566,700 | Over $566,700 |
Example: Married couple in FL sell their home with $480,000 gain. Taxable income $150,000. Section 121 excludes all $480,000 — federal tax owed = $0. Florida tax = $0. Net tax = $0.
Gain = Sale Price − Adjusted Basis. Getting the basis right can save you tens of thousands.
Purchase price + buyer closing costs (title insurance, recording fees, transfer taxes you paid, loan origination fees NOT deductible as points) + legal fees to clear title.
Increases basis (good): New roof, addition, kitchen or bath remodel, HVAC replacement, pool installation, hurricane impact windows, new flooring throughout, landscaping that adds permanent value.
Does NOT increase basis (repairs): Painting, patching drywall, replacing broken windows pane-by-pane, fixing a leaky faucet, pest control.
If you ever rented the home and claimed depreciation deductions, you must subtract those from your basis. This is called the adjusted basis — and it increases your taxable gain.
Real estate agent commission (typically 5–6% in FL), title insurance (seller's policy), FL Documentary Stamp Tax ($0.70 per $100), attorney fees, home staging, advertising costs, pre-sale repairs required by buyer contract.
| Item | Example Amount |
|---|---|
| Sale price | $550,000 |
| Less: agent commission (5.5%) | −$30,250 |
| Less: closing costs paid by seller | −$4,500 |
| Less: FL doc stamps (0.70%) | −$3,850 |
| Net proceeds | $511,400 |
| Less: adjusted basis | −$280,000 |
| Gross gain | $231,400 |
| Less: Section 121 exclusion (MFJ) | −$231,400 |
| Taxable gain | $0 |
If your Florida home was ever a rental property — even partially, even just one bedroom — and you claimed depreciation deductions, the IRS requires you to "recapture" those deductions as income when you sell. This is not covered by the Section 121 exclusion.
| Scenario | Treatment |
|---|---|
| Home always primary residence, no rental | No recapture — gain fully eligible for §121 exclusion |
| Home rented, then converted to primary residence | Depreciation taken during rental years is recaptured (taxed at ≤25%) — §121 covers the rest of gain if use/ownership tests met |
| Mixed-use home (e.g., home office, room rental) | Gain allocated between personal and business use; recapture applies to business portion |
| Home office deduction only (no rental) | Depreciation claimed on Schedule C reduces basis; recapture applies to office portion |
If you sell before meeting the 2-of-5-year requirement due to a qualifying hardship, you may still exclude a pro-rated portion of the gain.
Fraction = Months of qualified use ÷ 24 months × $250,000 (or $500,000 MFJ)
Example: Single seller owned/lived in home 14 months, sold due to job relocation. Partial exclusion = (14/24) × $250,000 = $145,833 exclusion.
Section 1031 of the IRS Code allows you to defer capital gains taxes by exchanging one investment property for another "like-kind" property. Primary residences do not qualify — this is for investment and business-use properties only.
| Deadline | Requirement |
|---|---|
| Day 0 | Relinquished property closes — proceeds go to a Qualified Intermediary (QI), NOT to you |
| Day 45 | Identify replacement property (up to 3 properties, or unlimited if under 200% rule) |
| Day 180 | Close on replacement property — hard deadline, no extensions for market delays |
If any proceeds land in your personal account — even briefly — the exchange fails and the full gain becomes immediately taxable. Funds must flow through a licensed Qualified Intermediary (QI).
FL has unique property types (condos with condo-hotel restrictions, 55+ communities, agricultural land). A QI familiar with FL title issues prevents costly exchange failures at the 45-day identification stage.
"Like-kind" in real estate is very broad. You can exchange a FL single-family rental for a commercial building, raw land, or apartment complex in any U.S. state — as long as it's held for investment or business use.
Using a 1031 exchange in FL saves only federal taxes (since FL has no state cap gains). But the deferred federal gain is substantial — especially for FL coastal investment properties that have appreciated 40–60% since 2019.
Though not a "capital gains" tax, FL's Documentary Stamp Tax (doc stamps) is a transfer tax paid by the seller at closing that reduces your net proceeds — and therefore your taxable gain.
| County | Rate | Cost on $400K Sale | Cost on $700K Sale |
|---|---|---|---|
| All FL counties (except Miami-Dade) | $0.70 per $100 | $2,800 | $4,900 |
| Miami-Dade County | $0.60 per $100 | $2,400 | $4,200 |
Doc stamps are governed by F.S. Chapter 201. They are a deductible selling cost — include them in your basis calculation to reduce taxable gain.
When you inherit a Florida home, your cost basis is "stepped up" to the fair market value on the date of the decedent's death (or alternate valuation date). If your parent bought their FL home for $80,000 in 1985 and it's worth $650,000 when you inherit it, your basis is $650,000 — not $80,000. A sale shortly after inheriting often generates zero capital gains.
If someone gifts you a Florida home while living (not inherited), you carry over their original basis. There is no step-up for gifts. If the original owner bought the home for $120,000 and gifts it to you when it's worth $500,000, your basis is $120,000 — not $500,000. A future sale would generate substantial taxable gain.
21 printable pages: offer strategies, closing cost worksheets, FL inspection guide, and agent interview scripts. Backed by Emanuel's FL real estate license.
If the gain is fully excluded by Section 121, you generally don't need to report the sale on your tax return — unless you received a Form 1099-S from the closing agent. If you received a 1099-S, you must report the sale on Schedule D even if the taxable gain is zero.
Condos are treated the same as single-family homes for capital gains purposes. Section 121 applies equally. Condo-hotel arrangements (where the unit is in a hotel rental program) may complicate the "use test" if you couldn't access the unit freely — consult a CPA.
The FL homestead exemption (F.S. §196.031) reduces your property tax bill while you own the home — it has no direct effect on capital gains at sale. However, FL's "Save Our Homes" cap (3% annual assessment cap) can keep your property taxes low for years, which is a separate financial benefit unrelated to the federal capital gains calculation.
The 3.8% NIIT applies to net investment income — which includes capital gains that exceed the Section 121 exclusion. If a married couple has $600,000 gain and excludes $500,000, the remaining $100,000 could be subject to NIIT if their modified adjusted gross income exceeds $250,000. The exclusion reduces NIIT exposure proportionally.
Only if the vacation home was your principal residence for 2 of the last 5 years. A true vacation home (used occasionally, not your primary address) does not qualify for the $250K/$500K exclusion. Gains are taxed at long-term capital gains rates. A 1031 exchange is available if the property qualifies as an investment property.