Capital Gains When Selling a Florida Rental or Inherited Home

Home › Blog › Capital Gains on a Florida Rental or Inherited Home · Updated October 25, 2026

Two sellers can sell similar houses on the same Cape Coral street for the same price and owe completely different amounts of tax. One inherited the house from a parent last year and owes little or nothing. The other has rented it out for a decade and owes tax on years of appreciation plus the depreciation they claimed. The difference comes down to a few federal rules about basis, holding period, exclusions and depreciation.

This article explains those rules in general terms so you understand the questions to ask. It is not tax advice. Tax outcomes depend on your full return, your filing status, how the property was titled, what you claimed in prior years and laws that change. Before you sign a contract, ask a CPA or enrolled agent to run your numbers, and ask a Florida attorney about any title, estate or trust questions. As a buyer, Libera Capital Group cannot advise you on taxes, but we can give you a written offer and a clear settlement statement your tax professional can work from.

How is capital gain on a house calculated?

The basic formula is the same for every type of property: amount realized minus adjusted basis equals gain or loss. Each piece has a specific meaning.

• Amount realized is the sale price minus selling expenses you pay, such as brokerage commissions, the documentary stamp tax on the deed, the owner’s title policy if you pay it, and settlement fees. Our guide to what it really costs to sell in Cape Coral and Fort Myers lists those expenses line by line.
• Basis usually starts as what you paid, plus certain purchase costs. For inherited property it starts at fair market value at the date of death, and for gifts it generally carries over from the giver.
• Adjusted basis is basis plus capital improvements, such as a new roof, an addition, a pool or a full repipe, minus depreciation allowed or allowable on a rental and certain casualty losses or insurance reimbursements. Routine repairs and maintenance generally do not increase basis.

Whether a gain is short-term or long-term also matters. Property held more than one year generally produces long-term capital gain, which is taxed at preferential federal rates of 0%, 15% or 20% depending on taxable income. Property held a year or less is taxed at ordinary income rates. Inherited property is generally treated as long-term no matter how soon the heirs sell. Higher-income sellers may also owe the 3.8% net investment income tax on gains that are not excluded.

What does Florida tax when you sell a house?

Florida does not impose a state personal income tax, so individuals do not owe a Florida capital gains tax on a home sale. That is a real advantage compared with selling in many other states. But two Florida costs are often confused with income tax:

• Documentary stamp tax on the deed is a transfer tax, usually paid by the seller at $0.70 per $100 of price outside Miami-Dade. It is a selling expense that reduces your amount realized, not a tax on your gain.
• Property taxes are prorated at closing. They are not part of capital gain, although the treatment of the year-of-sale taxes on your federal return is something your CPA will handle.

If you live in another state and sell a Florida property, your home state may tax the gain even though Florida does not. Snowbirds and out-of-state heirs should ask their CPA how their state of residence treats it.

How are capital gains calculated on an inherited house in Florida?

For most heirs, the most important rule is the stepped-up basis. Under federal law, property acquired from a decedent generally takes a basis equal to its fair market value on the date of death (or on an alternate valuation date, if the estate properly elects it). The appreciation that built up during the decedent’s lifetime is generally never taxed as capital gain.

That has three practical effects:

• A prompt sale often produces little or no gain. If you sell close to the date-of-death value, the gain may be small, and after selling costs there can even be a loss. Whether a loss on inherited property is deductible depends on how the property was used after death; ask your CPA.
• Documentation matters. A date-of-death appraisal from a licensed Florida appraiser is the usual way to establish the stepped-up basis. Without one, the estate or heirs may be left arguing about value years later. If the estate files an estate tax return, basis consistency rules may also apply.
• Holding period is automatically long-term. Even if the heirs sell within months, any gain is generally treated as long-term.

When there is no step-up: gifts and deed changes during life

A common Florida mistake is a parent “adding the kids to the deed” or deeding the house to children while still alive. A lifetime gift generally does not get a stepped-up basis; the children usually take over the parent’s original basis for the gifted share. A house bought for $90,000 in the 1990s and gifted, rather than inherited, can produce a much larger taxable gain when the children sell. Other arrangements, including certain life estate deeds and revocable trusts, are designed so the property is included in the owner’s estate at death and may still receive a step-up. How your family’s deed or trust was drafted makes a large difference, so have a Florida estate planning attorney and a CPA review it before you sell.

Married couples, joint ownership and Florida’s community property trust option

When one spouse dies, the portion included in the decedent’s estate generally gets a step-up, while the surviving spouse’s share may keep its original basis. Florida, which is not a community property state, adopted a statute in 2021 that lets married couples opt into a community property trust, which can affect how basis is treated at the first death. Whether that applies, and how, is a question for an estate planning attorney and CPA. For the legal steps to sell an inherited property, see our step-by-step guide to selling an inherited house in Florida and inherited and probate property.

Can you use the $250,000/$500,000 home sale exclusion on a Florida house?

Section 121 of the Internal Revenue Code lets an individual exclude up to $250,000 of gain, or up to $500,000 for most married couples filing jointly, on the sale of a main home. Those amounts are set by statute and are not indexed for inflation. The IRS explains the rules in detail in Publication 523, Selling Your Home. In general, to qualify you must meet three tests:

• Ownership: you owned the home for at least two years during the five years ending on the sale date.
• Use: you lived in it as your main home for at least two years during that same five-year period. The two years do not have to be consecutive.
• Look-back: you did not use the exclusion on another home sale within the two years before this sale.

For a married couple to claim the full $500,000, generally either spouse can meet the ownership test, but both must meet the use test. Reduced, partial exclusions may be available if you sell early because of a change in work location, health or certain unforeseen circumstances.

How the exclusion interacts with rentals and inherited homes

• Inherited homes generally do not qualify unless the heir personally owned and lived in the house as a main home for the required time after inheriting it. Most heirs rely on the step-up instead.
• A former home you rented out may still qualify if you lived in it two of the last five years. That is why timing matters for owners who moved and rented the house: once more than three years of rental pass, the use test is usually lost. Even when the exclusion applies, depreciation claimed after May 6, 1997 cannot be excluded.
• A rental you later moved into may qualify only in part. Periods of “nonqualified use” after 2008, such as years the property was a rental before you made it your home, can reduce the excludable gain.
• Owners moving to assisted living may get special treatment. If you become physically or mentally unable to care for yourself, time spent in a licensed care facility can count toward the use test as long as you lived in the home for at least one year of the five. Families arranging a parent’s move should see selling a parent’s home for assisted living.

Divorcing couples face their own timing and ownership rules, including how a transfer between spouses and continued use by one spouse are treated. Your divorce attorney and CPA should coordinate; see selling a house during divorce.

How are Florida rental properties taxed when you sell?

Rental and investment properties do not qualify for the home sale exclusion unless the owner also meets the residence tests. Instead, the gain is generally taxed in layers.

Depreciation recapture

While you own a residential rental, the tax code generally lets you deduct the cost of the building (not the land) over 27.5 years. Those deductions lower your basis. When you sell, the part of your gain that comes from depreciation on real property is generally “unrecaptured section 1250 gain,” taxed at a maximum federal rate of 25% rather than the regular capital gains rates. Importantly, basis is reduced by depreciation that was “allowed or allowable,” so owners who never claimed depreciation can still face recapture as if they had. If your prior returns skipped depreciation, raise that with your CPA early.

Long-term capital gain

Gain above the recaptured depreciation is generally long-term capital gain if you held the property more than a year, taxed at 0%, 15% or 20%. The net investment income tax of 3.8% can apply on top of that for higher-income sellers.

Suspended passive losses

Many landlords have rental losses they could not deduct in earlier years because of the passive activity rules. A fully taxable sale of the entire property to an unrelated buyer generally frees up those suspended losses, which can offset some of the gain. Your CPA will need your prior Form 8582 history to apply them.

Landlords thinking about an exit should also read selling as a tired landlord and, if tenants are still in place, selling with problem tenants. Owners of small apartment buildings will find property-specific information on multifamily and apartment buildings.

What does this look like with real numbers? (Hypothetical examples)

Example only — not tax advice, a quote or an offer. These simplified examples ignore many factors, including purchase costs, state taxes for out-of-state sellers, depreciation on improvements, the net investment income tax and the specific brackets that apply to you. They are meant to show the structure of the calculation, nothing more.

Notice how much the same-sized sale can vary. In Example A, the step-up erased decades of appreciation. In Example B, depreciation that saved the owner tax each year comes back as a separate, higher-rate layer. In Example C, the exclusion may cover the entire gain for a married couple but not for a single seller. Your real numbers need a professional, and our net proceeds calculator can help you estimate your pre-tax proceeds to bring to that meeting.

Which timing and structure options should you discuss with your CPA?

None of the following is a recommendation; each has rules, costs and risks. They are the topics sellers of Florida rentals and inherited homes most often raise with their tax advisors.

Exchanges and installment sales have to be set up before closing; you generally cannot convert a finished sale into one afterward. If you are considering a 1031 exchange or seller financing, involve your intermediary and CPA before you sign the contract. Our page for CPAs and 1031 intermediaries explains how we coordinate timing with your advisors, and owners of commercial or investment property can see we buy commercial property.

Foreign sellers and FIRPTA

If the seller is a foreign person for U.S. tax purposes, the buyer is generally required under FIRPTA to withhold a percentage of the amount realized, commonly 15%, and send it to the IRS, subject to exceptions and reduced-withholding applications. The withheld amount is a credit against the seller’s actual U.S. tax, not the tax itself. Canadian and European owners of Southwest Florida homes should speak with a cross-border CPA well before closing, because applying for a withholding certificate takes time.

Reporting the sale

The closing agent typically reports real estate sales to the IRS on Form 1099-S, though some principal residence sales are excepted when the seller provides the required certifications. Either way, your tax return should report the sale correctly; rentals are commonly reported on Form 4797 and capital gains on Form 8949 and Schedule D. Keep your final settlement statement with your tax records.

What should you bring to your CPA before selling?

1. Purchase records or date-of-death value. Your original closing statement, or a date-of-death appraisal, death certificate, will or trust, and any probate order for inherited property.
2. Improvement records. Permits, contracts and receipts for roofs, additions, pools, seawalls, windows, HVAC and repipes. Storm-related insurance payments and repairs, too.
3. Rental history. Prior returns showing Schedule E, depreciation schedules and any suspended passive losses, plus dates the property was rented versus lived in.
4. Residence dates. When you moved in and out, and evidence of where your main home was, such as a homestead exemption, driver’s license or voter registration.
5. A draft net sheet or written offer. Your expected price and selling costs. A written as-is cash offer or an agent’s net sheet lets your CPA model the result before you commit.

How does Libera Capital Group work with sellers who have tax questions?

Libera Capital Group buys houses and improved commercial property for cash anywhere in Florida, focused on Southwest Florida. We do not give tax advice, but we make it easier for your advisors to give theirs. We put our offer in writing, show how we arrived at it, close through a Florida title company with a clear settlement statement, and can set the closing date for a time that works with your CPA’s plan, whether that is before year-end, after a holding-period milestone, or on your 1031 intermediary’s timeline. We can close in as little as 7–14 days when title is clear, charge no commissions and typically pay the normal closing costs.

Our principals are licensed Florida real estate brokers who buy as principals for our own account; we do not represent you, and you are free to compare our offer with listing or keeping the property. For the overall process, see how it works.

Frequently Asked Questions about capital gains on Florida home sales