Capital gain is the profit made when an investment asset is sold for more than its adjusted basis. In real estate, this gain is categorized as either short-term (held for one year or less) or long-term (held for more than one year), with long-term gains receiving favorable, lower tax rates.
How It Applies to Florida Landlords
Because Florida is a popular destination for real estate speculation, many investors flip properties. Understanding the difference between short-term capital gains (taxed as ordinary income) and long-term gains (taxed at lower rates) is vital for tax planning. Landlords aiming to build long-term wealth should hold assets for over a year to benefit from the lower capital gains tax rates, whereas full-time flippers must prepare for higher tax burdens.
Key Takeaways
- Calculated as Sale Price minus Adjusted Basis.
- Long-term gains (held >1 year) are taxed at lower federal rates.
- Short-term gains are taxed at ordinary income tax rates.
- Capital losses can be used to offset capital gains.