Capital Gains Tax on Selling a TV Property and Buying another Property

[Lisa22]

Can anyone give me a quick and dirty refresher? Here is my circumstance: Bought a CV in December 2020. Rented it for two years, then became a FT Florida resident and have lived in TV since 2023. Filed Federal and State taxes for 2022 in another state.

If we sell and buy another property here, I understand that there is no Florida Capital Gains tax but the Federal Capital Gains tax still applies. However, in Florida the rules are that one must own the property AND be a Florida resident for at least two years to avoid any Capital Gains? I do know to take the sale of the property and add any expenses due to updating the property in order to calculate the left over equity for which I will have to pay taxes. Capital Gains are also dependent upon income level as well.

Am I correct or can someone correct me on any of the above? Thank you in advance.
We do not have a Trust set up in Florida yet - should we do that first? We would like to sell/buy in the very near future.

-Lisa

[melpetezrinski]

Can anyone give me a quick and dirty refresher? Here is my circumstance: Bought a CV in December 2020. Rented it for two years, then became a FT Florida resident and have lived in TV since 2023. Filed Federal and State taxes for 2022 in another state.

If we sell and buy another property here, I understand that there is no Florida Capital Gains tax but the Federal Capital Gains tax still applies. However, in Florida the rules are that one must own the property AND be a Florida resident for at least two years to avoid any Capital Gains? I do know to take the sale of the property and add any expenses due to updating the property in order to calculate the left over equity for which I will have to pay taxes. Capital Gains are also dependent upon income level as well.

Am I correct or can someone correct me on any of the above? Thank you in advance.
We do not have a Trust set up in Florida yet - should we do that first? We would like to sell/buy in the very near future.

-Lisa

You will only pay capital gains at the federal level, since there is no state tax in Florida. If you lived in the home for 2 years, you would be exempt from those capital gains up to $250k for single, $500k for married. Yes, add every expense you can to increase the cost of the home, which reduces your profit and capital gains.

[Robbb]

You will only pay capital gains at the federal level, since there is no state tax in Florida. If you lived in the home for 2 years, you would be exempt from those capital gains up to $250k for single, $500k for married. Yes, add every expense you can to increase the cost of the home, which reduces your profit and capital gains.

Great question and great answer. Also isn't the first $80,000? of capital gains taxed at 0%

[melpetezrinski]

Great question and great answer. Also isn't the first $80,000? of capital gains taxed at 0%

I think that "$80,000" you are referring to is for the $89k taxable income exclusion for a long term asset and filing married. So, we have ventured outside of the OP's "quick and dirty". For tax year 2023, to qualify for a 0% rate on capital gains, you need to have less than $44,625 in taxable income if you are single and $89,250 for married and the capital gain characterizd as long term.

[manaboutown]

Check with a CPA, especially if you depreciated the property while it was rented and expensed or capitalized various costs.

[rjm1cc]

Great question and great answer. Also isn't the first $80,000? of capital gains taxed at 0%

The rate varies and depends on your income. You can even end up with an extra 3.8% tax if your income is high enough. Could also push you into the Alternate Income Tax. Then if you are on Social Security your medical insurance costs could also increase. Thus if you have a large capital gain you are thinking of taking be sure you understand your tax obligations. Fortunately most of us will not have this problem.

[BrianL99]

The rate varies and depends on your income. You can even end up with an extra 3.8% tax if your income is high enough. Could also push you into the Alternate Income Tax. Then if you are on Social Security your medical insurance costs could also increase. Thus if you have a large capital gain you are thinking of taking be sure you understand your tax obligations. Fortunately most of us will not have this problem.

As other have said, consult a CPA.

The post quoted, is very relevant. I recently sold some property, including a personal residence and trust me, the supposed 15% Long Term Capital Gains Tax (under $492,301) turned out to be way closer to 20%, plus a major increase in Medicare costs.

[melpetezrinski]

Check with a CPA, especially if you depreciated the property while it was rented and expensed or capitalized various costs.

"IF" you depreciated? Hopefully, the OP did, otherwise, they will be back on TOTV asking why the IRS wants to recapture all the depreciation expense even if they didn't take advantage of this tax saving expense.

[petsetc]

"IF" you depreciated? Hopefully, the OP did, otherwise, they will be back on TOTV asking why the IRS wants to recapture all the depreciation expense even if they didn't take advantage of this tax saving expense.

I do believe the IRS code says you MUST treat the depreciation as ordinary income, even if you DID NOT TAKE IT. If that be the case, you might want to amend previous returns. Also, as I recall, there is a 3-year look-back period to get (additional) refunds, after that it is gone.

Depending on the total $ involved, I would recommend a Enrolled Agent more than a CPA.

[charlieo1126@gmail.com]

Check with a CPA, especially if you depreciated the property while it was rented and expensed or capitalized various costs.I agree , I’ve sold a total of 14 homes and condos here in Florida including 6 homes here . While there is much helpful information on here and some people seem to really know what there talking about , the only people that I would rely on for information on taxes and other legal issues is someone who is actively doing it for a living right now

[asianthree]

I would advise you to speak to your CPA instead of the guessing game with zero knowledge of your taxes

[Babubhat]

Find a CPA or law firm summary online. They write on this topic frequently. Tax ability depends on individual facts and circumstances. Sample below

Tax Issues When Converting a Rental to Your Personal Residence | Professional Tax Services (https://www.protaxservices.com/blog/tax-issues-when-converting-a-rental-to-your-personal-residence/45933)

[Eg_cruz]

Can anyone give me a quick and dirty refresher? Here is my circumstance: Bought a CV in December 2020. Rented it for two years, then became a FT Florida resident and have lived in TV since 2023. Filed Federal and State taxes for 2022 in another state.

If we sell and buy another property here, I understand that there is no Florida Capital Gains tax but the Federal Capital Gains tax still applies. However, in Florida the rules are that one must own the property AND be a Florida resident for at least two years to avoid any Capital Gains? I do know to take the sale of the property and add any expenses due to updating the property in order to calculate the left over equity for which I will have to pay taxes. Capital Gains are also dependent upon income level as well.

Am I correct or can someone correct me on any of the above? Thank you in advance.
We do not have a Trust set up in Florida yet - should we do that first? We would like to sell/buy in the very near future.

-Lisa
Is the home your primary home now?

[rsmurano]

She rented the home out, this wasn’t her primary residence. You got another issue that I had to deal with and that’s when you buy another ‘like’ place, which means you will need to buy another rental or you will be taxed more at the federal level.
Can You Avoid Capital Gains by Buying Another Home? | SmartAsset (https://smartasset.com/taxes/can-you-avoid-capital-gains-tax-by-buying-another-home)

[PersonOfInterest]

I would 2nd the recommendation for an Enrolled Agent vs. a CPA or Attorney. The reason for this recommendation is that EAs (enrolled agents) are usually only involved in Tax matters and are required to attend education concerning Taxation. CPAs are more likely to be involved in small business and other business and personal financial matters and their education covers a broad spectrum of accounting. Attorneys are involved in all types of legal matters unless they are a Tax attorney. If they are a Tax attorney their interest would be in Tax Court cases and not personal taxation. It is possible that a CPA or Attorney would deal only with Tax matters, but its not likely.

From what was described you will have Depreciation recapture and you will have Federal capital gains. You cannot escape the depreciation recapture, but if you live in the house for 2 years or more as your personal residence you may escape the federal Capital gains. You would be well advised to check with an EA or other tax professional.

[kimreniska@mac.com]

Topic No. 409, Capital Gains and Losses | Internal Revenue Service (https://www.irs.gov/taxtopics/tc409)

[westernrider75]

You will only pay capital gains at the federal level, since there is no state tax in Florida. If you lived in the home for 2 years, you would be exempt from those capital gains up to $250k for single, $500k for married. Yes, add every expense you can to increase the cost of the home, which reduces your profit and capital gains.

Is that a “one-time” exemption or can that be used more than once?

[JanaR]

Hi,
If you live in that property for 2 years, you can make up to $250,000 as a single person or $500,000 as a married couple without paying capital gains. If you were to sell that property and buy another rental property, you could do a 1031 which is a way to defer the taxes until you sell that one. It has to be like kind property equal to or greater than the one you would sell. If you are wanting to sell that and buy a permanent home for yourself, you need to live there 2 years. I hope that helps. You can contact me for any additional info.
Warm Regards,
Jana Raber
Realty Executives In The Villages
812-499-9571
check out my Youtube videos @ Jana Raber

[bowlingal]

speak with an accountant to be sure. Do not take advice on something so important on here

[retiredguy123]

Is that a “one-time” exemption or can that be used more than once?
You can do it more than once. There is no limit.

[cjky2k]

I would advise you to speak to your CPA instead of the guessing game with zero knowledge of your taxes

100% agree. And since you haven’t sold in 2023, it will be a 2034 tax event anyway - not 2023. However, if you want to “play around” OR if you prepared your taxes yourself, you can us TurboTax (and I would assume other tax prep software) to run scenarios. It won’t be precise but should be directionally correct and you will have to “pretend” you sold in December 2023.

All that said, assuming you rented it all “above board”, a CPA is the best and safest way to go. Without question.

Last thought - if you declared residency here earlier this year, could you not live in the CV for two years from that date and thus make it your primary residence??

Good luck. Get a professional’s help. PS i had rental properties in the past that turned into a permanent residence. It’s tricky. Peace of mind that the IRS won’t be sending you any letters is worth a fair amount in my book!!!

[Sully]

If this was an income property, not primary and you intend to sell then buy another income property, look into1031 exchange. Timing is critical though, you only have like 45 days to make this happen. Then, the tax can be deferred until a later date when you realize the gains. Essentially, you're kicking the can down the road on the tax but you can make money on the money in the interim.

[RICH1]

BINGO , you nailed it ...

[RICH1]

check with a cpa, especially if you depreciated the property while it was rented and expensed or capitalized various costs.
you nailed it ....,

[sowilts]

Why not talk to the Tax Lady at your tax office.

[PipeDream]

We did not have to pay NY taxes on property purchased in a 1035 exchange because we were residents of Florida for over one year at the time of the sale. Sweet.

[Gvdvn]

If you have not completed a sale yet there is the possibility not trading the house for a different property. It gets complicated and must all close together. It has been a long time since I have heard of this but in past I know of a transaction to trade an apartment building in California for 6 houses in Missouri all closing in a deal. Of course the it was all separate and just closed swapping money.

[FredJacobs]

The information in this reply is correct. You must have lived in the house for at least two of the last 5 years to get the FULL exclusion of $250K or $500K to reduce the capital gains tax. You can further reduce the capital gain by adding the costs of preparing the house for sale. This would include adding major appliances, repairs, new landscaping, painting, etc. One more thing - The tax forms do allow for some pro-rating of the exclusion if you cannot meet the full two years. The tax form calls for the dates of during which you actually occupied the house.

By the way, if you used Schedule E to pay tax on the rental income and took depreciation, your return becomes a lot more complicated - there are extra forms to be filed - Sale of a business asset, depreciation adds to your profit, etc.

I recommend that you have your return prepared by a professional. I am pretty sure that your return would be "out of scope" for the AARP's Tax-Aide folks.

[Wondering]

My understanding, for IRS, is if the house you are buying cost more than the house you sold there is no capital gains jeopardy. I would think Florida tax would be the same.

[kingofbeer]

I assume that you reported the rental income and rental expenses. Keep good records and check with a CPA.

[Carla B]

My understanding, for IRS, is if the house you are buying cost more than the house you sold there is no capital gains jeopardy. I would think Florida tax would be the same.

A far as I know, there is no Florida tax. For complicated matters I also like the idea of an Enrolled Agent. However, we had a situation of selling our former residence-turned-rental property in 2012 and I filled out the tax return and required forms myself. Never heard a peep about it from the IRS.

[Babubhat]

Answers here are incomplete. A conversion from rental property to residence has multiple steps to calculate the correct taxation of the transaction. Read professional analysis previously cited or pay for professional help. Tax software is another alternative. You are responsible for your return. Code, regulations, case law is all the IRS wants to hear about support for the tax treatment on the return

Deferral of a gain is a different more complicated issue.

A special rule enacted in 2008 requires the proration of gain on the sale of a personal residence that was initially used other than as a personal residence. See link below

Tax Issues When Converting a Rental to Your Personal Residence | Professional Tax Services (https://www.protaxservices.com/blog/tax-issues-when-converting-a-rental-to-your-personal-residence/45933)

[Haggar]

Can anyone give me a quick and dirty refresher? Here is my circumstance: Bought a CV in December 2020. Rented it for two years, then became a FT Florida resident and have lived in TV since 2023. Filed Federal and State taxes for 2022 in another state.

If we sell and buy another property here, I understand that there is no Florida Capital Gains tax but the Federal Capital Gains tax still applies. However, in Florida the rules are that one must own the property AND be a Florida resident for at least two years to avoid any Capital Gains? I do know to take the sale of the property and add any expenses due to updating the property in order to calculate the left over equity for which I will have to pay taxes. Capital Gains are also dependent upon income level as well.

Am I correct or can someone correct me on any of the above? Thank you in advance.
We do not have a Trust set up in Florida yet - should we do that first? We would like to sell/buy in the very near future.

-Lisa

First - no FL tax - though it you lived in another state in the year you sold the property the gain may be taxable there.

The federal exemption for a gain applies if you live in a primary residence in two of the past five years prior to the sale. You said you moved here in 2023 so the exemption doesn't apply yet.

If you had a loss on the property in the years you rented it and could not take the loss because of passive activity rules you would be able to take the accumulated loss in the year of sale.

If you were selling this as a commercial property and buying another commercial property to defer the gain you could use Section 1031.

Gain on the sale is based on the cost of the property (including certain costs) less depreciation taken against the net sales price (after expenses).

I'm a CPA - if you want to give me a call my number is 561-968-8571.

[Haggar]

Can anyone give me a quick and dirty refresher? Here is my circumstance: Bought a CV in December 2020. Rented it for two years, then became a FT Florida resident and have lived in TV since 2023. Filed Federal and State taxes for 2022 in another state.

If we sell and buy another property here, I understand that there is no Florida Capital Gains tax but the Federal Capital Gains tax still applies. However, in Florida the rules are that one must own the property AND be a Florida resident for at least two years to avoid any Capital Gains? I do know to take the sale of the property and add any expenses due to updating the property in order to calculate the left over equity for which I will have to pay taxes. Capital Gains are also dependent upon income level as well.

Am I correct or can someone correct me on any of the above? Thank you in advance.
We do not have a Trust set up in Florida yet - should we do that first? We would like to sell/buy in the very near future.

-Lisa


it amazes me how much advice is given by people on this site when an request is made for legal or tax advice who are guessing and don't really know the answer. If you want legal or tax advice go to a professional in these fields. What applied in one set of circumstances may not apply to the poster's situation. This inquiry needs more info to provide a correct answer or provide alternative ideas. You're all trying to be helpful but if you don't know the answer ....

[Babubhat]

Facts and circumstances are unique to each transaction.

[Lea N]

As other have said, consult a CPA.

The post quoted, is very relevant. I recently sold some property, including a personal residence and trust me, the supposed 15% Long Term Capital Gains Tax (under $492,301) turned out to be way closer to 20%, plus a major increase in Medicare costs.

Can you tell me if this is a permanent increase?

[Driller703]

I would 2nd the recommendation for an Enrolled Agent vs. a CPA or Attorney. The reason for this recommendation is that EAs (enrolled agents) are usually only involved in Tax matters and are required to attend education concerning Taxation. CPAs are more likely to be involved in small business and other business and personal financial matters and their education covers a broad spectrum of accounting. Attorneys are involved in all types of legal matters unless they are a Tax attorney. If they are a Tax attorney their interest would be in Tax Court cases and not personal taxation. It is possible that a CPA or Attorney would deal only with Tax matters, but its not likely.

From what was described you will have Depreciation recapture and you will have Federal capital gains. You cannot escape the depreciation recapture, but if you live in the house for 2 years or more as your personal residence you may escape the federal Capital gains. You would be well advised to check with an EA or other tax professional.

What is an “enrolled agent”, and how do I locate one.
Thanks

[Sully]

........

[Bridget Staunton]

The 1031 exchange you have to identify your new property within a short time & also close within a limited time. Check the laws

[manaboutown]

it amazes me how much advice is given by people on this site when an request is made for legal or tax advice who are guessing and don't really know the answer. If you want legal or tax advice go to a professional in these fields. What applied in one set of circumstances may not apply to the poster's situation. This inquiry needs more info to provide a correct answer or provide alternative ideas. You're all trying to be helpful but if you don't know the answer ....

Thank you for this observation. I could not agree more.

While responding posters's advice appears to be well intended a number of the posts are replete with dangerous misguidance including an ill-informed recommendation based on out of date tax law that no longer applies. I use dangerous in the sense that a return could likely be red flagged by the IRS as obviously incorrect. An audit would mean costly penalties, interest charges and possibly professional fees. I encourage the OP not to be pennywise and pound-foolish. Seek professional assistance before filing a tax return.

The OP's situation requires professional guidance as several issues present themselves. It is not a simple yes or no. Although little information was provided it certainly was sufficient to indicate a tax professional should be consulted, a CPA or a registered agent. I doubt a tax attorney is needed.

[Carla B]

What is an “enrolled agent”, and how do I locate one.
Thanks

An Enrolled Agent is a person who has passed a comprehensive exam in tax matters and has been awarded the highest credential by the IRS. Ellen Cronin in Oxford is such a person.

[petsetc]

An Enrolled Agent is a person who has passed a comprehensive exam in tax matters and has been awarded the highest credential by the IRS. Ellen Cronin in Oxford is such a person.

Also, if you look at HR Blocks, several of their people in this area are Enrolled Agents, and that will be stated in their bios.

I had a friend at Block where I worked when I first retired. He was an Enrolled Agent and was the contract provider for TurboTax users when they got audited.

I know many people don't like HR Block, but as a former part-time preparer for them, my experience was, in general, you got great service.