Taxes on Selling a House in Florida: What to Expect

If you or your property are unable to check all of the IRS criteria boxes, you may still qualify for a partial exclusion of gain. This can happen if the main reason for your home sale is a change in workplace location, a health issue, or an unforeseeable event. For details on such circumstances, please refer to IRS Publication 523.

Documentary stamp tax (transfer tax)

In Florida, the sale of real estate triggers a documentary stamp tax, also known as a transfer tax. This tax is calculated based on the sale price of the property and is typically paid by the seller.

The Florida documentary stamp tax rate is $0.70 per $100 of the sale price, with the exception of Miami-Dade County, where the rate is $.60 per $100.

For example, if you sold a $500,000 home in Flordia, here are the equations you would use to estimate your documentary stamp tax:

• Statewide: $500,000 divided by 100 x $0.70 =  $3,500
• Miami-Dade County: $500,000 divided by 100 x $0.60 =  $3,000

If your Miami-Dade property is anything other than a single-family residence, residence, the tax rate would be $0.60 plus $0.45 surtax per $100.

This tax ensures that the transaction is officially recorded and documented.

Property taxes owed

Even if you’re selling your home, you’re responsible for the property taxes up to the date of the sale. Florida property taxes are paid in arrears (meaning at the end of the year). The state does not assess property taxes until November of the year for which they are due.

This means the timing of your sale will determine if you owe property tax when you close the deal. If you’ve already paid for the year, you may receive a prorated refund. Alternatively, if you haven’t paid yet, the amount will be prorated, and you’ll owe for the portion of the year you owned the home.

Florida currently ranks 24th in the nation with an average effective property tax rate of around 0.862%, but rates vary by county. For example, the annual property tax on a home with a $300,000 assessed value might be approximately $2,586.

“For property taxes, if it is someone’s primary residence, then there are exemptions that one can qualify for,” says Nelson. “They can reduce their tax burden or value of about $50,000, and it also caps it from increasing at only three percent per year.”

Nelson adds that these property tax exemptions are available for active duty military and veterans, senior citizens, surviving spouses of a first responder who died in the line of duty, and more.

House-selling tax mistakes to avoid

To avoid capital gains tax surprises, Nelson advises sellers to make certain they know their ownership dates. “I’ve seen people that will sell their home just shy of that two-year mark, which can have big implications. If you sell on day 360 in that second year of ownership, then for capital gains reasons, you haven’t hit a full year of ownership, so it’s taxed at a higher amount.”

Nelson says another pitfall to avoid is not having sufficient records about repairs and improvements you’ve done to your property.

“Let’s just say you’re a single person and you exceed $250,000 in gains, but you’ve done a lot of work to the property. You can drop your basis (the amount your home is worth for tax purposes) if you have all the receipts and information that you can provide to your accountant for the work that you’ve done to the property,” Nelson says.

She provides this example: “So if you bought a house for $200,000 and sell it for $500,000, there’s a $300,000 gain. Ignoring all closing costs and things like that aside, if you put $60,000 into it to renovate the house, make sure that your accountant has that documented information. That way, it drops it back down (to $240,000), and you might not have any capital gains implication.”

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Other selling expenses to anticipate in Florida

When selling a house in Florida, there are several additional expenses to consider beyond taxes. These costs can impact your net proceeds. Here’s what you can expect:

• Title fees: These consist of title insurance and a title search. Title insurance protects against any issues with the home’s title, such as illegal deeds, undiscovered wills, or forgeries. These fees can range between 0.5% and 1% of the sale value. A title search, costing between $100 and $250, can be paid by either the seller or the buyer. It verifies that the seller is the rightful owner and that there are no outstanding claims or judgments.
• Settlement fees: Typically amounting to about 1% of the home sale, these fees cover the services provided by the title company, escrow company, or attorney facilitating the transaction’s closing. This lump sum, often referred to as escrow fees, handles the closing paperwork and distributes funds to the appropriate parties. The cost is usually split between the buyer and seller.
• Agent commissions: The agent commission fee in Florida generally ranges from 5% to 6%, split between the buyer’s agent and the seller’s agent. Traditionally, the seller pays for both agents’ commissions. However, a recent court settlement by the National Association of Realtors is poised to change this, allowing buyers to negotiate Realtor fees directly with their agents.

Ways to prepare for real estate taxes

Taxes after a home sale don’t need to be a surprise or intimidating. Simple steps can help you prepare for what’s to come when selling a home in Florida:

• Know your home’s value: Use an online Automated Valuation Model (AVM) tool like HomeLight’s free Home Value Estimator. Having a ballpark idea of what your home might be worth can help you calculate potential capital gains from the sale.
• Save the right documents: Know what tax documents you will need when purchasing or selling a home. Consult with your tax advisor about the federal and state documents required to file in Florida and any available tax breaks for your selling situation.
• Find a top agent: Partnering with an experienced Florida real estate agent can be invaluable. A qualified agent can guide you through the home sale process, helping you understand the tax implications and ensuring a favorable outcome by maximizing your profit. HomeLight makes it easy to find top-rated real estate agents in your Florida market, considering factors like the agent’s sale-to-list-price ratio and local price trends to find agents who will put more cash in your pocket when you close your sale.

Nelson shares these parting insights for Florida home sellers: “Hire a professional. That way, you’ll have the right guidance to avoid any pitfalls or issues on timing.”

Header Image Source: (Joshua Case / Unsplash)