When it comes to selling your second house, there are certain things you need to consider; an excellent real estate agent, the best price for your home, how fast will the house sell and the most important factor being the tax implications in your region. It is advisable to consult a professional accountant when undertaking this venture. There are different types of taxes associated with the selling of second homes in Florida including:
Capital Gain Tax
Capital gain is the returns you receive from selling your second home. Capital gain tax is levied only on the profit you earn. It is dependent on the level of profits you make, and lower income may result in no capital gain taxes.
There is a way of eliminating or reducing the capital gain tax by living in the second home as a primary residence for 24 months in the last five years before you sell it. It allows you a reduction of taxable profits of up to $250,000 for singles and $500,000 for couples, and it is only applicable once in every two years. You can also reduce your taxable profit if the conditions for selling your house is due to health problems, jobs transfers or other unforeseen circumstances. Foreign services persons and the military also receive unique considerations.
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Florida Property Tax
Property tax in Florida is taxed annually, and the proceeds go towards infrastructure including medical services, roads, and libraries. The local municipality appraises every house in the state and then proceeds to determine the tax rate. Florida statutes dictate how the counties assess property value. Primary residents of Florida are entitled to a reduction of the assessed property value up to $50,000 which is not a reduction in the tax rate but slightly reduces the total calculated tax.
Taxes on Selling a Second Home
During the sale period of the house, the property tax will be credited to the buyer of the home who will end up paying property tax for the whole year, and it is due at the end of the year. You are accountable for the portion of the tax in proportion to how long you stayed in residence during that year. You can pay the buyer your share of the tax and they would then proceed to settle the total property tax due at the end of the year.
If you are looking to sell your second home and purchase another house or rental property, there is the 1031 exchange program which presents the seller an opportunity to defer tax. The 1031 exchange is an arrangement whereby you sell your investment property or rental home in exchange for another property. The exchange mechanism is available for all Florida residents and sellers of real estate.
A requirement for the 1031 exchange is that your second home should not be considered the primary residence and must be a rental property. 1031 exchanges are direct and easy to facilitate, but you incur a fee for the exchange.
In conclusion, the best option when selling your second home is to take into account your personal goals and liaising with a professional to find the best option that suits you. You can choose to perform the 1031 exchange or pay the taxes due on the profit and the best option for you will be clear after a careful calculation of all the scenarios.