Florida Short-Term Capital Gains Taxes Explained
Investors in Florida who hold capital assets for less than a year and sell them for a higher amount than they paid will need to pay the short-term capital gains tax on the gain. This tax is paid to the Internal Revenue Service (IRS) at the federal—and not the state—level. Because Florida doesn't tax income, there is no Florida short-term capital gains tax.
How Capital Assets Are Classified
Capital assets include:
Real estate
Stocks and bonds
Precious metals
Jewelry
Capital gains taxes are also charged on the sale of:
Art
Antiques
Coins
Stamp Collections
Other collectibles
Calculating capital gains on property sales is part of real estate accounting.
Short-Term vs. Long-Term Capital Gains
A capital gain from the sale of a capital asset that you've held for less than a year is classified as a short-term capital gain. If you hold the asset for more than a year, it is considered a long-term capital gain.
Short-term capital gains are taxed as ordinary income and are subject to the federal tax rates that apply to your tax bracket. These tax brackets are determined according to your status:
Single
Head of household
Married filing jointly
Married filing separately
Income taxes are also progressive, which means that the income in each tax bracket is subject to the rate for that income range. Couples filing jointly pay 10% tax on the first $20,550 of their income, 12% on income from $20,551 to $83,550, and so on to a maximum of 37% for income $647,850 and above (the thresholds for single, head of household, and married filing separately are lower).
The long-term capital gains tax rate is 0%, 15%, or 20%, depending on the amount of the gain. Art, antiques, stamp collections, coins, jewelry, precious metals, and other collectibles are taxed at a flat rate of 28%.
Will I Pay More Tax on Long-Term or Short-Term Gains?
In general, you will pay a more favorable rate if you hold onto capital assets for more than a year than you will if you sell them in a shorter time frame. This is especially true if the amount of investment income runs into hundreds of thousands of dollars, for which there is a large difference between the maximum tax on long-term gains (20%) and the maximum tax rate for ordinary income (37%).
Smaller gains, in the thousands, will still tend to attract more favorable rates if you hold onto the asset for longer than one year. In this case, the difference could be several hundred dollars.
Will a Short-Term Capital Gain Push Me Into a Higher Tax Bracket?
As "ordinary income," yes—a short-term capital gain may push you into a higher income tax bracket. However, because ordinary income rates are progressive, only the portion of the capital gain that is over your regular income bracket will be taxed at a higher rate. You won't pay the higher rate on all of your taxable income.
Capital Losses Explained
When you sell a capital asset for less money than you purchased it for, this is referred to as a capital loss. You can claim up to $3,000 ($1,500 married filing separately) each year for capital losses incurred during that or a previous financial year. When deducting capital losses, deduct short-term capital losses from short-term capital gains and long-term capital losses from long-term capital gains.
Calculate Florida Real Estate Short-Term Capital Gains Tax
Capital gains are calculated as the sale price of the asset minus the adjusted basis. The adjusted basis is:
The amount you paid for the asset
Minus depreciation (for buildings held longer than one year and offered for rent or business use)
Plus the amount you spent on improvements to the building
Plus the costs involved in selling the asset
For example, let's say you purchased a property in Jacksonville, Florida, for $75,000 in January, did some renovations on the property worth $15,000, and sold it for $100,000 in November at a cost of $5,000.
The original purchase price is $75,000.
There is no depreciation applied because the asset was held for less than one year and the building wasn’t offered for rent.
Add $15,000 in renovations. That brings the adjusted basis to $90,000.
Add $5,000 in sale costs. That brings the adjusted basis to $95,000.
Finally, subtract $95,000 from the $100,000 you made in the sale. The short-term capital gain is $5,000, which will be added to your taxable income and taxed at the applicable marginal tax rate using Schedule D on IRS Form 1040.
Deducting a Capital Loss
Let’s say that in the same year you sold another property at a loss of $4,000. In that case, you could deduct a maximum of $3,000 from the $5,000 short-term capital gain and you would then pay income tax on the remaining $2,000. The remaining $1,000 of short-term capital loss can be claimed against short-term capital gains in future years.
A Note About Property Taxes
If you buy and sell a property in less than one year, you still need to pay Florida property taxes. These taxes are due on any property you own in Florida for any amount of time and are not tax-deductible. At the beginning of each calendar year, your local county will assess the fair value of your property and send you a Truth in Millage. You will then have until March 31 to pay.
The Best Way to Save on Short-Term Capital Gains Taxes
There are a lot of factors that go into the decision to sell a capital asset, and tax rates are just one of them. For example, if you're selling shares because you need the cash for an urgent expense, a higher tax rate might be a sacrifice you're willing to make to receive the money now.
However, if your investment portfolio is part of your financial planning strategy for retirement, it's in your best interests to know whether you'd come out better financially by paying short-term or long-term capital gains tax. In retirement, a few hundred dollars can go a long way.
To sort through the options and avoid federal tax penalties for underpayment, it's advised that you see a Florida accountant who can explain the pros, cons, and ways to reduce your tax liability. As long as you have the documentation to back it up, the tax savings could be significant.
