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Selling a home and the possible income tax involved

By ERIC FEICHTHALER - Real Estate Law | May 13, 2021

Eric Feichthaler

Dear Mr. Feichthaler:

My wife and I have lived in the same home in Cape Coral for 20 years. We certainly have seen the ups and downs. We are considering selling our house and downsizing. While we are thrilled that prices have gone up over the past few months, we are concerned about taxes. Is there a way to avoid income taxes on this?

— Steven R.

Dear Steven:

We have seen a substantial increase in price across all real estate types in Cape Coral over the past four months. I have several clients in your situation that have decided to sell, sometimes at a much higher price than they paid for it.

Based on your comments, it sounds like this property has been your primary residence for the past 20 years. The IRS code provides that, if you lived in the home for two of the preceding five years, that the home is considered a “primary residence” for federal income tax purposes. This is important, because the code provides a generous exemption amount of $250,000, per person, of profit from the sale! This means that $500,000 of profit will not be subject to any federal income tax. As an example, if you paid $200,000 for your home in 2010, and selling it now for $650,000, a husband and wife will pay NO income tax on the sale. If you are lucky enough to have a profit in excess of $500,000, you will only pay income tax on the amount of profit in excess of $500,000. Although there could be tax law changes on the horizon with the new administration, it is not anticipated this exemption will be repealed for the 2021 tax year.

And, as covered in previous columns, you will be able to transfer some of your “save our homes” property tax savings to your new home, if you buy in Florida. That will help keep your property taxes low into the future. Don’t forget, make sure you fully understand your contract to sell the property before signing, or have an attorney review it with you. Good luck with your sale!.

Eric P. Feichthaler has lived in Cape Coral for over 33 years and graduated from Mariner High School in Cape Coral. After completing law school at Georgetown University in Washington, D.C., he returned to Southwest Florida to practice law and raise a family. He served as mayor of Cape Coral from 2005-2008, and continues his service to the community through the Cape Coral Caring Center, Cape Coral Historical Museum, and Cape Coral Kiwanis. He has been married to his wife, Mary, for over 20 years, and they have four children together. He earned his board certification in Real Estate Law from the Florida Bar. He is AV Preeminent rated by Martindale-Hubbell for professional ethics and legal ability, and is a Supreme Court Certified Circuit Civil Mediator.

Mr. Feichthaler can be reached at eric@capecoralattorney.com, or (239) 542-4733.

This article is general in nature and not intended as legal advice to anyone. Individuals should seek legal counsel before acting on any matter of legal rights and obligations.