Great choice! Moving to Florida as a retiree can be a great decision for taxes. Relocating to Florida isn’t just a change of scenery; it shifts your tax picture, healthcare costs, and estate planning as a retiree. Florida doesn’t have an individual state income tax, which is great for many retirees, but the sale of your current home can create a federal tax liability along with potentially a tax liability from the state you lived within. A little planning now can save thousands later and hopefully make the break from your former state clean and easy.
A quick win if you already moved to Florida: Start a folder with your new home’s basis records (purchase documents, improvement receipts, and selling costs). You’ll need them if you ever sell your new home.
Let’s get into the details.
Will I pay tax if I sell my primary residence?
It is unlikely but it depends. The most common misconception we hear is that you won’t owe taxes if you sell your primary residence and lived in it for two years.
In many cases, the above is true, but it is not for everyone. Most retirees selling a primary residence can exclude some or all of the gain under Federal tax IRC §121 (the “2-out-of-5 years” rule). It is important to run the test to confirm the exclusion applies to your situation.
- Exclusion amount: Up to $250,000 of gain if single, or $500,000 if married filing jointly (subject to qualifying use and ownership tests).
- The tests: Generally, you must have owned and used the home as your principal residence for at least 2 of the last 5 years before the sale.
- Partial exclusion: Possible for certain qualifying situations (e.g., health-related moves).
- What reduces capital gains: Purchase price, capital improvements (additions, improvements to the property), certain selling costs (commissions, transfer taxes). Repairs and routine maintenance usually don’t reduce capital gains. Understanding the difference between repairs and improvements is important, consulting a professional when a portion of the gain is taxable is heavily advised.
If you ever rented the home: Depreciation you claimed (or could have claimed) is recaptured and taxed when you sell—this part isn’t typically sheltered by the §121 exclusion.
If your gain exceeds the exclusion: The excess may be taxed at long-term capital gains rates and could also trigger the 3.8% Net Investment Income Tax (NIIT) depending on your income.
State taxes may apply as well: The sale of the house will be taxed based on the state it was sold in for U.S property sales. If you are expecting federal taxes, it would be best to analyze your situation for state taxes as well.
Helpful IRS references to review(Outside links): IRS Publication 523 (Selling Your Home) and the text of IRC §121.
Timing your sale to manage your tax bracket & Medicare (IRMAA)
A large gain—even if excluded—can still influence your Modified Adjusted Gross Income (MAGI) if part of the gain is taxable or you have other income spikes (RMDs, Roth conversions, mutual fund distributions).
- Medicare IRMAA: Premium surcharges are based on MAGI from two years prior. A big sale this year can increase premiums in future years if some of the gain is taxable.
- Year-end vs. new-year closing: If you’re close to a threshold, choosing which calendar year your sale lands in (when practical) can help manage tax brackets and IRMAA lookbacks to avoid paying unnecessary tax.
- Installment sale? In limited cases (typically not for a pure principal residence gain fully excluded), spreading payments over years can smooth income. Talk with a CPA before committing.
If you believe this could have an impact on your taxes when you sell, a conversation can often save $5,000 - $10,000 in taxes. Reaching out to Blue Heron CPAs or another qualified resource is heavily advised.
State-level surprises when you sell your primary residence
Some states require withholding on real estate sales when the seller is (or becomes) a nonresident. Others have transfer taxes or special forms at closing.
- Action item: Ask your listing agent and closing attorney/title company about nonresident withholding or state departure forms early. Timing is extremely important and ignoring this could result in the state holding $40,000 for more than 9 months.
- States may not conform to federal rules: Though most states conform to the federal 121 exclusion mentioned above, double-check that your state does. Capital gains on sale can also be taxable to the state you are moving from.
- If you’re leaving a high-tax state: Confirm whether any state credits or estimated tax payments could be needed in your final year as a resident or part-year resident.
Landing in Florida: homestead, property taxes, and domicile
Florida’s tax advantages really shine once you establish domicile and claim Homestead Exemption.
- Florida Homestead Exemption: Lowers your assessed value for property tax. Apply with your county property appraiser—deadline is typically March 1 for the current tax year.
- Documentation for domicile for tax purposes: Florida driver’s license, voter registration, declaration of domicile, updating insurance, moving bank/investment accounts, and updating estate planning documents to reflect Florida residency. Review how aggressive the state you are moving from is with residency and ensure you conform to that state’s rules as well.
States such as New York, California, Michigan, and Illinois have become much more aggressive in their guidance towards residency. Ensuring proper documentation is extremely important in reducing the risk of future tax assessments from former states.
Common “tax gotchas” (and how to avoid them)
- Missing paperwork: Not tracking improvements can inflate taxable gain. Keep receipts, contractor invoices, permits, and before/after photos if possible.
- The 1099-S Trap: Most people assume that if it isn’t taxable, you don’t need to include it. If you receive a 1099-S, you should file with it included on your tax return. Though not technically incorrect as far as income reporting, you will heavily increase your chance of the IRS looking into the transaction for whether it was properly reported which can result in months of IRS correspondence.
- Short ownership period: If you haven’t met the 2-out-of-5 requirement, ask about partial exclusion eligibility before listing.
- Recent home office or rental use: May create depreciation recapture or reduce the exclusion on the portion used for business.
- Charitable giving timing: If you’ll itemize in the sale year, bunching charitable gifts or using appreciated securities may help manage taxes.
- Moving expenses: Generally not deductible for retirees (moving deductions are limited to certain active-duty military).
- Personal Property: Maybe you sold the house with turnkey or with your refrigerator, couch, and other belongings as you didn’t want the hassle of moving them. These typically aren’t included in the house’s basis. You might consider selling them separately.
Things to bring your CPA if you sold your home
There may be additional documents needed but this will work as sufficient documentation for 95% of sales.
- Closing Disclosure or Seller’s Statement from Title Company for original home purchase
- Closing Disclosure or Buyer’s Statement from Title Company for original home purchase
- Receipts of improvements made to the residence
- Dates the home was your primary residence (for each owner/occupant).
- If seeking partial qualification, bring medical records or proof of job change along with qualifying documents.
- If previously rented or used as a home office for business:
- Depreciation schedule from prior tax return
- Dates of rental use
A simple pre-sale to-do list when selling your home
3–6 months before listing
- Gather basis documentation: purchase HUD/CD, improvement receipts, property tax and insurance records.
- Ask a CPA to model best/worst-case gain and potential IRMAA impacts.
- If leaving a withholding state, confirm seller withholding and any nonresident rules.
At listing/contract
- Confirm whether your closing requires Form 1099-S reporting (common) and that your primary residence status is documented with the title company.
- If you had rental or home office use, have depreciation records ready.
After closing
- File/track closing statements and proofs of basis in your tax folder.
- If you’re immediately purchasing in Florida, calendar the Homestead Exemption application and gather residency proofs (DL, voter reg).
- Update estate docs and beneficiaries to your Florida plan.
- Set up withholding/estimated tax only if your overall tax plan requires it.
Can I 1031 exchange my primary residence?
A 1031 exchange is for investment or business property—not a primary residence. If your home had mixed use (e.g., part rental), limited strategies exist, but they’re technical. Get advice before closing if you think any portion could qualify as investment property. This becomes extremely complicated and expensive.
When to get help by a tax professional when selling your home
- You want it properly reported on your tax return to avoid further issues.
- You’re unsure whether you meet the §121 exclusion or have mixed personal/rental use.
- Your estimated gain might exceed the exclusion.
- You’ve had a recent spouse’s passing (step-up in basis may apply; documentation matters).
- You’re moving from a state with nonresident withholding at sale.
- You want to coordinate the sale year with RMDs, Roth conversions, or charitable plans.
Generally yes, if you owned and used the home as your primary residence for 2 of the last 5 years; limits are $250k single/$500k MFJ.
If part of your gain is taxable, it may raise MAGI and increase Medicare premiums two years later.
The state where the property is located may tax the sale and may require nonresident withholding—check before closing.
Typically March 1 for the current tax year; it is always best to confirm the date and apply with your county property appraiser.
No—1031 is for investment property. Mixed-use situations are complex; get advice before closing.
Friendly next steps
- Have us run a quick “sale year” tax simulation. We’ll estimate gain, show IRMAA risks, and map filing deadlines.
- Ask about a Florida move-in checklist. We’ll help you time your Homestead Exemption and domicile steps.
- Bring your records. Purchase docs, improvements, rental/home office info, and your closing disclosure make this easy.
[Book a discovery call] • [Tax Planning for Retirees]
This article is for general informational and educational purposes only and is not tax, legal, or financial advice. The article is written from the perspective of a Florida individual where other states may have different laws. Use it to help you ask better questions about your situation. For advice tailored to you, consult a qualified tax professional.
About Nathan Gauger, CPA
Nathan Gauger is the Managing Partner of Blue Heron CPAs and focuses on retirement tax planning—helping retirees make confident decisions around Roth conversions, RMDs, Social Security timing, and Medicare-related costs like IRMAA. His goal is simple: make sure your tax plan supports the life you want in retirement, not just the return you file this year.
➡️ Ready to talk? Visit BlueHeronCPAs.com and use the “Book a Meeting” page to schedule a consultation.