6 Tax Deductions When Selling Your Home

Are you ready to sell your home? With all of the excitement and anxiety that comes with the territory, you’re no stranger to the fact that selling your home is a huge next step in your life. A transaction of this size has the potential to yield a massively substantial return, putting money back into your pockets after years of regular mortgage payments. With all of that new money headed your way, it’s important to be aware of the legal implications you’ll run into come tax season.

Unbeknownst to most, there are a number of tax deductions you may qualify for upon selling your home. These deductions can amount to significant savings when you file your annual tax return—so the more deductions you take, the higher the profit you’ll walk away with. And with more money in your pocket comes even more potential to land a new living space that encompasses all of your needs.

Before you get wrapped up in your visions of the future, take the time to think about the present and your inevitable tax duties that come with selling your home. If you’re wondering what is tax-deductible when you sell a house, here’s a comprehensive look at 6 tax write-offs you may be eligible for.

1. Selling Costs

Despite the nature of the transaction in question, selling your home actually costs money. Fortunately, many of these costs associated with selling a house typically qualify as tax-deductible. This includes escrow fees, legal fees, real estate agent commissions, advertising costs, and even home staging fees. In order for the IRS to happily accept all of your eligible deductions, you’ll need to keep all of your relevant records and expense receipts perfectly organized before it’s time to file.

How to Get this Home Sale Tax Deduction

Taking advantage of selling expense tax deductions is simple. Take a look at these two scenarios to see where your responsibilities lie.

Scenario #1: You already sold your house

In this case, you would simply need to collect all of your relevant receipts, invoices, and expense reports and file them under separate sections. Keep in mind that these costs are subtracted from the sale price of your home, which will positively affect your overall capital gains tax.

Scenario #2: You are currently selling your house

Make a pointed effort to keep flawless records of all expenses incurred tied to the selling of your home. Even if you haven’t sold your home by the time your return is due, you can still deduct the associated costs so long as they qualify within the tax year in question.

2. Home Improvement Tax Deductions

Were there any improvements that you made to your home in order to make it more marketable? How about repairs to anything faulty or broken within your property? Chances are that these changes have helped you increase your selling price. The home improvement tax deduction even encompasses new paint jobs, roof and water repair, or anything that remains useful past a year.

There is a catch, however. Regular home repairs made to maintain your property’s condition or prepare it for sale do not qualify as tax-deductible under current tax code Publication 523. The IRS treats repairs and improvements differently; repairs are required maintenance for property upkeep, and improvements are changes that increase the value of the home.

In order to qualify as tax-deductible, the home improvements must have been made within 90 days prior to filing your tax return.

Examples of Accepted Tax-Deductible Home Improvements

Some examples of common tax-deductible home improvements include:

  • Installing central air conditioning
  • Finishing the basement
  • Replacing all the windows
  • Widening hallways and doorways
  • Installing solar panels
  • Adding granite counters to the kitchen and baths

How to Get this Home Sale Tax Deduction

Home improvements are technically considered capital improvements, meaning the money you spend on these modifications increase the capital gain you’ll earn on it when you sell your home. When you make a capital improvement, you will be required to add the amount of added value to the amount deducted from the sale price of your home that ultimately determines your profits collected.

3. Property Taxes

Assuming you were paying your property taxes regularly, you can deduct the amount you paid for the time you owned it. This deduction is still allowed under the 2018 tax law changes, but your total deductions are limited at $10,000.

How to Get this Tax Home Sale Deduction

Scenario #1: You already sold your house

To make sure you can write off your property taxes after selling your house, you will need to itemize your deductions. The number-crunching involved with itemizing your deductions can be difficult, so we recommended enlisting the help of a tax professional to do it for you. Should you care to do it yourself, have a look at IRS Schedule A (Form 1040) to review the ins and outs of itemizing real estate taxes.

Scenario #2: You are currently selling your house

Regardless of where you are amid the selling process, determining an estimate of how much you paid in property taxes can set you up for success come tax season. Wherever you’re at in the process of selling your house, doing this will allow you to better understand your property tax liability (and the buyer’s) closer to closing time.

4. Mortgage Interest

You can deduct the interest on your mortgage for the portion of the year you owned your home for up to $1 million. The 2018 tax changes have made it so that new homeowners and sellers can deduct the interest up to $750,000 of mortgage debt. Homeowners who received their mortgage before December 15, 2017 can continue deducting up to $1 million.

How to Get this Home Sale Tax Deduction

Scenario #1: You already sold your house

Keeping your documents in perfect working order is of the utmost importance if you’re hoping to claim the mortgage interest tax deduction. When tax season rears its head, you should receive Form 1098 from your lender that details the mortgage interest you’ve paid over the course of the year. Keep this document handy when it comes time to itemize your deductions.

Scenario #2: You are currently selling your house

Even if your house has been on the market for months, you’ll likely be able to deduct the associated mortgage costs (so long as the house in question is your main house).

5. Moving Expenses

As of 2018, the moving expenses tax deduction is only available to members of the armed forces on active duty. According to IRS Publication 3, you must meet the following criteria to qualify for the moving expenses tax deduction:

  • Must be a member of the Armed Forces on active duty
  • Must be relocating permanently for a change of station, due to a military order

How to Get this Home Sale Tax Deduction

Using Form 3903, you must record the following information and send along with your completed tax return:

  • Transportation and storage of household goods and personal effects
  • Travel (including lodging) from your old home to your new home

6. Capital Gains Tax

Though this one is technically an exclusion, it can still save you quite a bit of money. A capital gain is the profit you make from selling an asset. Most home sellers are able to exclude a large portion of their profit from capital gains taxes.

How to Get this Tax Deduction

You can exclude $250,000 of your gain from taxes if you’re single or $500,000 if you’re married. You must also meet the following requirements:

  • You owned the home for a minimum of two years before selling
  • The home is your primary residence
  • You have not excluded capital gains from a home sale in the past two years

With a clearer understanding of what is tax-deductible when you sell a house, you’re exponentially closer to reaping the highest return on your investment come tax season. Still unsure of how to navigate the water of real estate tax deductions? Contact one of our tax professionals to help you streamline your filing today!