How Proposed Tax Changes Will Impact Home Sellers in Florida
There are tax changes being discussed that will impact home sellers. If you are thinking about selling your home, it is important to stay up to date on these developments. Here's a brief overview of how proposed tax changes will impact home sellers in Florida.
Seller's Net Earnings
When selling a home, one of your biggest concerns is how much you will net from that sale. This is particularly important if you need a certain amount of funds to put towards the purchase of your next home. The funds from your sale are normally used to pay off your mortgage, real estate broker fees, attorney fees, and miscellaneous selling expenses. Depending on the property, your earnings could also be subject to capital gains taxes. Most homeowners intentionally avoid this when selling their principal residence by occupying the home for a certain amount of time.
Primary Residence Occupancy Requirement
Currently, if you lived in your primary residence for 2 out of the last 5 years, some of your gains are exempt from taxes. For single tax filers, the exemption is $250,000. For married filers, it's $500,000. This exemption is based on your gains, not the sales price. Home sellers have long relied on this exemption for deciding when to sell a home.
Under the new tax plan, you would be required to occupy your principal residence for 5 out of the last 8 years in order to use the exemption. This 3 year addition is a big deal, especially for professionals in transition or those prone to relocation. The proposed tax changes will impact home sellers in Florida by changing their timelines for selling or even their ability to sell and make a profit.
Capital Gains Taxes on Earnings
The amount of capital gains taxes that you pay will depend on your income tax bracket. For 2017, the amount ranges from 15% to 20%. Imagine having to pay that much tax on the earnings from your home sale. It will undoubtedly impact what type of home you will be able to afford next or may even discourage you from selling and buying for several more years. This is one of the major ways that proposed tax changes will impact home sellers in Florida and the Florida real estate market. With inventory already low, this discouragement could result in even few homes available for purchase.