Capital Gains on a Florida Vacation Home Sale | Port Realty Group

What will I owe in capital gains when I sell my Forgotten Coast vacation home?

By Billy Joe Smiley | September 1, 2026

I want to say up front that I am a broker, not a CPA or a tax attorney, and nothing here is tax advice for your specific return. What I can do is tell you how this conversation usually goes, because I have it several times a year with owners who bought a place on Cape San Blas or in Mexico Beach a decade ago and are now sitting on real appreciation.

The good news is that this is a very solvable problem, and Florida owners start from a better position than almost anyone in the country. The trouble only comes when someone waits until the closing table to ask the question. Bring your CPA in before you list, and you have options. Bring them in after the sale, and you are just filing a return.

The First Thing to Get Straight: Gain Is Not Sale Price

When someone tells me their place is worth $900,000 and they paid $500,000, they usually assume the taxable number is $400,000. It almost never is. Here is the actual arithmetic:

Sale price, minus your adjusted basis, minus your selling costs, equals your gain.

Your adjusted basis starts with what you paid, plus certain purchase costs, plus every capital improvement you have made over the years. On a coastal property, that list is usually longer than people remember. A new metal roof, impact windows, a rebuilt deck or boardwalk, an elevator, a pool, a seawall, an HVAC replacement, a full kitchen renovation. Those are improvements, and they raise your basis. Routine maintenance and repairs generally do not, which is a distinction your CPA will draw for you.

Then your selling costs come off the top. Brokerage commission, documentary stamps on the deed, title charges you pay, and other closing expenses all reduce the gain. I broke every one of those down line by line in What Does It Cost to Sell a Home on Florida's Forgotten Coast?, and the ownership side of the math is covered in what property taxes run on a vacation home here.

I have watched a $400,000 assumed gain come down substantially once an owner pulled fifteen years of improvement receipts out of a filing cabinet. That is why I ask sellers to start gathering records the day we first talk, not the week we go under contract.

Why the $500,000 Exclusion Probably Does Not Apply

This is the piece that catches people. The Section 121 exclusion, the one that lets a married couple exclude up to $500,000 of gain and a single filer up to $250,000, applies to a principal residence. To use it, you generally need to have owned the home for at least 24 months and used it as your main home for at least 24 months during the five years ending on the sale date.

A house you come to for holidays, summers, and long weekends does not meet the use test, no matter how much you love it. So the gain on a pure vacation home is fully taxable at the federal level.

There is a real path here, though, and I have seen owners take it. If you convert the property to your primary residence and live in it as your main home for at least two years, you can potentially qualify. The catch is a rule called nonqualified use: the portion of your gain allocated to periods after 2008 when the property was not your principal residence stays taxable, calculated proportionally against your total ownership period. So the exclusion is reduced, not eliminated. For someone already thinking about retiring to the coast, that math is worth running with a CPA well in advance.

What the Rates Actually Look Like in 2026

If you have owned the property more than a year, your gain is long-term, which is the favorable treatment. Here is the 2026 structure:

Two things to keep in mind. Those brackets apply to taxable income, meaning your income after deductions, and the gain itself counts toward it, so a large sale can push part of your gain into a higher band. And a separate 3.8 percent net investment income tax can apply once modified adjusted gross income passes $200,000 for a single filer or $250,000 for a joint filer.

One more item specific to this market: if you have been renting the place out and claiming depreciation, the portion of your gain equal to that depreciation is taxed at a maximum of 25 percent as unrecaptured Section 1250 gain. It applies based on depreciation allowed or allowable, so it comes into play even if you never took the deduction. That is a number to pull from your prior returns before you set a price expectation.

The Moves Worth Making Before You List

Here is what I ask sellers to do, in order, and none of it is complicated:

• Build the improvement file first. Receipts, contractor invoices, permits, and before-and-after photos going back to your purchase. This single step moves the number more than anything else on this list.
• Pull your closing statement from when you bought. Certain purchase costs add to basis, and that document has them.
• If you have rented the property, get your depreciation schedule from your CPA so you know the recapture figure going in rather than learning it in April.
• Ask your CPA about timing. Which tax year the closing lands in can matter, especially if you have a year with unusually high or low income coming.
• If the property has genuinely been held for investment, ask about a 1031 exchange before you sign a listing agreement. The vacation rental safe harbor generally looks for a 24-month qualifying period with at least 14 days of fair-market rental each year and personal use held under the greater of 14 days or 10 percent of rented days. I broke the full mechanics down in how a 1031 exchange works when you sell investment property here. It is a path I have helped a number of owners on this coast navigate, and it has to be set up before the closing, never after.
• Talk to me about pricing and timing in the same conversation. Tax planning and list price are connected, and it is easier to plan both at once.

Owners sometimes tell me they are hesitant to sell because of the tax bill. My honest answer is that the tax is a consequence of a good outcome. You bought well on a stretch of coast that has appreciated, and you get to keep the large majority of it in a state that takes none of it. That is a strong position to be selling from. If you want the current read on what buyers are doing across Port St. Joe, St. Joe Beach, and the rest of the coast before you decide on timing, start with Is Now a Good Time to Buy on Florida's Forgotten Coast? for the bigger picture, then check my weekly market reports for the latest numbers.

If you are thinking about selling a place on this coast in the next year or two, the best move you can make right now is a short conversation with me and a short conversation with your CPA, in whichever order suits you. I will give you a straight read on value, timing, and what the market is paying for your property. Your CPA will handle the return. Between the two of us, you should walk into a closing with no surprises at all. Call or text me and we will start there.

This article is general information about how capital gains work on a second home sale and is not tax or legal advice. Tax rules change and every return is different. Please confirm your own numbers with a qualified CPA or tax attorney before making a decision.