Thanks for following up David. You would have gain equal to $1,000,000 less the $375,000 basis (purchase price plus cost of improvements). Then, you can exclude up to $250,000 of the gain under Section 121 of the Internal Revenue Code from the sale of your principal residence. That would leave gain of $425,000. Florida has no income tax so you need not worry about tax on the state level.
The federal tax laws concerning taxation of long term capital gains are as follows, and in determining the income bracket your gain is included unfortunately:
0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.
In addition, starting in 2013, capital gain income became subject to an additional 3.8% Medicare tax for taxpayers with income at or above a certain threshold. This 3.8% Medicare surtax applies to taxpayers with “net investment income” in excess of threshold income amounts of $200,000 for single filers and $250,000 for married couples filing jointly.
This is the part of my job I don't like...when the law is not in favor of my customer. I wish I could tell you there would be no tax, but, I can only provide you information based on the law so that you can act on the best available information to you. ………..I wish I had better news, but can only hope you recognize and understand my predicament and don't shoot the messenger. I'm sorry!
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