A capital gain is the difference between the amount a capital asset sold for and the price you originally paid. If you have capital gains income, you may be subject to both federal and state capital gains tax rates. Since Florida does not have a state personal income tax, you do not pay a separate state capital gains tax. You only need to report the gain on your federal return, in most cases. Under certain circumstances, capital gains in Florida may be subject to another state tax.
Classifying Capital Gains
According to the IRS, nearly everything you own and use for personal purposes, pleasure or investment is classified as a capital asset. Examples include your home, household furnishings, collectibles, mutual funds, stocks and bonds. The IRS taxes capital gains differently, depending on the type of asset and how long you owned it. If you held the asset for more than a year, the tax rates assessed are generally lower than ordinary income tax rates. (reference 1)
Reporting Capital Gains
Although Florida does not charge a separate state tax on capital gains, you are required to report a capital gain or capital loss on your federal tax return. If you hold the asset for longer than a year, the capital gain is considered long-term. Assets you own for less than a year before selling are considered short-term. Capital gains are reported on Schedule D, Capital Gains and Losses, and on Form 8949, Sales and Other Dispositions of Capital Assets. After calculating your gain, you transfer the number to line 13 of Form 1040.
Primary Home Exclusion
At the time of publication, you can exclude up to $250,000 of the gain on the sale of your primary home if you meet the IRS eligibility criteria. If you are filing a joint return with your spouse, the exclusion doubles to $500,000. The home must be your primary residence. You must have lived in the home for at least two years within the past five years. If you did not live in the home for at least 24 months prior to the sale, you may still qualify for the exclusion. An exception is allowed if you had to sell your home due to extenuating circumstances, including a job change or health concerns. If you can exclude the gain under the IRS guidelines, you do not need to report the sale on your tax return.
Exceptions to Florida Laws
If the capital gain is the result of a real estate sale, the location of the property and the state considered your primary residence are key factors. If you live in Florida and sell a home in Florida, you do not pay state income taxes. However, if you live in a state with a personal income tax and sell a home you own in Florida, you may be required to report the income from the sale on the state return. Some states require you to report income from all sources, including real estate sold in another state. For example, California requires you to declare all sources of income on the state tax return.
You are advised to speak with your tax professional to ensure accuracy and timeliness of any given tax or legal advice.