Capital Gains Tax on Miami Luxury Real Estate 2026

When you sell a Miami home, the federal capital gains tax on your profit turns on three things: whether it was your primary residence, how long you owned it, and how large the gain is. Under IRS Section 121, a primary resident can exclude up to $250,000 of gain if single, or up to $500,000 if married filing jointly, provided you owned and used the home as your principal residence for at least two of the five years before the sale [1]. Above those exclusion amounts, long-term gains (assets held more than a year) are taxed at 0%, 15%, or 20% depending on taxable income, and for 2026 the 20% rate begins above $545,500 of taxable income for single filers and $613,700 for married couples filing jointly [2]. Florida has no state income tax, so the analysis is federal. This guide explains the rules that matter to Miami sellers whose gains often exceed the Section 121 caps.

Last updated: July 2026

The Section 121 primary-residence exclusion

Section 121 is the first thing to establish, because it can eliminate a large chunk of tax. If you owned and lived in the home as your principal residence for periods totaling at least two years within the five years ending on the sale date, you can exclude up to $250,000 of gain (single) or $500,000 (married filing jointly) [1]. The two years of ownership and use do not have to be continuous, and the use test can be met with different two-year segments within the five-year window [1]. A married couple qualifies for the full $500,000 only if at least one spouse meets the ownership test, both meet the use test, and neither excluded gain on another home in the prior two years [1]. You can generally use the exclusion only once every two years [1].

These dollar amounts have not been indexed for inflation since 1997, which is why they matter so much at the Miami luxury tier: the caps have stayed flat while values rose [1].

Why luxury sellers often owe past the exclusion

In higher-priced Miami neighborhoods, a long-held property can carry a gain well beyond $250,000 or $500,000, and the exclusion only shelters the first slice. Consider a home in Coconut Grove or Coral Gables bought years ago and sold today: if the gain is $1.5 million and the sellers are married, Section 121 shelters $500,000 and the remaining $1 million is potentially taxable as a long-term capital gain [1]. That is the mechanic that drives most luxury capital gains bills. It is not a special luxury tax; it is the fixed exclusion cap meeting large appreciation.

The 2026 long-term capital gains rates

For assets held more than one year, long-term capital gains are taxed at 0%, 15%, or 20% based on taxable income and filing status. For the 2026 tax year, the thresholds are:

Single filers: the 20% rate applies to taxable income above $545,500; below that the rate is 15% (or 0% at the lowest income levels) [2].
Married filing jointly: the 20% rate applies to taxable income above $613,700 [2].

Most Miami luxury sellers with a large gain will land in the 20% bracket once the gain is added to their income. On top of that, the Net Investment Income Tax, an additional 3.8% surtax, can apply to investment income, including capital gains, once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly [3]. That combination is why the effective federal rate on a large gain can approach the low twenties as a percentage.

Depreciation recapture on a former rental

If the property was ever a rental and you claimed depreciation, part of your gain is taxed differently from the rest. The portion of gain attributable to depreciation you took, called unrecaptured Section 1250 gain, is taxed at a maximum rate of 25%, higher than the 20% long-term capital gains ceiling [4]. Residential rental real estate is depreciated on a straight-line basis over 27.5 years, so an owner who rented a Miami property for several years before selling will typically have accumulated depreciation that is subject to this 25% treatment, with any gain above that taxed at ordinary long-term rates [4]. This matters for owners who converted a primary residence to a rental, or the reverse, because the Section 121 exclusion does not shelter the depreciation-recapture portion. Keep your depreciation schedules and coordinate the calculation with your tax advisor.

Section 1031 for investment property

If the property is held for investment or business use rather than as your primary residence, Section 1031 offers a different path: a like-kind exchange can defer the capital gains tax when you reinvest the proceeds into another qualifying investment property, following strict identification and closing timelines. Section 1031 does not apply to a personal residence, and it defers rather than eliminates the tax, but for an investor rolling from one Miami rental or commercial asset into another, it is a core planning tool. The rules are technical, so coordinate with a qualified intermediary and your tax advisor before closing.

Adjusting your basis to shrink the gain

Your taxable gain is sale price minus selling costs minus your adjusted basis, so basis matters. Capital improvements you made over the years, certain closing costs, and other qualifying additions increase your basis and reduce the gain. Keep documentation. For a long-held Miami home with substantial renovations, a well-documented basis can move the taxable number materially. If you are weighing a sale, a property valuation gives you the current-value side of the equation, and a seller consultation is where you plan the timing around your exclusion and rate bracket.

Frequently asked questions

How much home-sale gain can I exclude from taxes?

Under Section 121, up to $250,000 if you are single or up to $500,000 if married filing jointly, provided you owned and used the home as your principal residence for at least two of the five years before the sale [1].

Does Florida charge its own capital gains tax?

No. Florida has no state income tax, so capital gains on a home sale are a federal matter. The rates and exclusions come from the IRS, not the state.

What are the 2026 long-term capital gains rates?

Long-term gains are taxed at 0%, 15%, or 20% depending on taxable income. For 2026 the 20% rate begins above $545,500 for single filers and $613,700 for married couples filing jointly, and a 3.8% Net Investment Income Tax can also apply at higher incomes [2].

Can I avoid capital gains tax on an investment property?

A Section 1031 like-kind exchange can defer, not eliminate, capital gains tax on investment or business-use property when you reinvest in another qualifying property under strict timelines. It does not apply to a primary residence. Consult a qualified intermediary and tax advisor.

How is depreciation taxed when I sell a former rental?

The portion of your gain attributable to depreciation you claimed, the unrecaptured Section 1250 gain, is taxed at a maximum rate of 25%, above the 20% long-term capital gains ceiling [4]. It is not covered by the Section 121 exclusion, so keep your depreciation schedules.

At what income does the 3.8% NIIT apply?

The Net Investment Income Tax applies once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly, and these thresholds are not indexed for inflation [3].

Gabriel

Sources

Gabriel A. Moyers, PA. eXp Realty. Florida License #3407280. Equal Housing Opportunity. This article is general information as of July 2026 and is not legal, tax, or financial advice. Verify current figures against authoritative sources before acting.