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5 Tax Deductions Every Home Seller Should Know
When selling your house, you might be wondering if there is a way to lessen the tax burden. The quick response? Of course. The correct deductions can sometimes save you thousands of dollars without you even noticing it. I’ve assisted many clients with property sales.
Comprehending these deductions is essential if you just sold your house or intend to do so. Things were somewhat upended by the 2017 Tax Cuts and Jobs Act, and 2023 has seen some revisions as well. This implies that the guidelines you recall from a few years ago may no longer be entirely applicable.
The truth is that selling your house involves more than just setting up your rooms and locating the ideal buyer. It’s also a financial event that can have a big effect on your taxes. If you know where to search, you can find ways to lower your taxable income, including through closing expenses, home improvements, and even the capital gains exclusion.
I’ll go over the main tax deductions that every property seller should be aware of in this post. By the end, you’ll know exactly which expenses you may write off and how they impact your bottom line. Let’s make sure that no money is left unaccounted for.
1. Selling Costs Deduction
You may be shocked to learn how many expenses can actually reduce your taxes when you sell your house. I’ve witnessed homeowners ignore this because they believe that just property taxes or mortgage interest are included, but this is untrue.
Consider all of the expenses you incurred to list your house for sale, including advertising, escrow fees, legal fees, real estate agent commissions, and even staging. It can lower your taxable gains if you paid for it and it was directly related to the sale of your house.
When it comes time to file, I always advise customers to keep thorough records of these expenses because you’ll be glad you did.
The worst part is that these are not deductible like mortgage interest. Rather, you deduct them from the sale price of the house. The real savings occur when your capital gains are reduced by that lower figure. That small amount of bookkeeping work can have a surprisingly significant impact, in my opinion.
Understanding how home appraisals can impact your ultimate sale price is a wise idea when you’re tracking your selling costs. This article on important appraisal data can be helpful.
2. Home Improvements and Repairs
Let’s now discuss home renovations. I am aware that you may believe that repairing the roof or painting the kitchen are just necessary steps in preparing your home for sale. The secret is that those expenses may also lower your taxes.
As long as the improvements were completed within ninety days of closing, you can include them in your selling costs if you made them to increase the marketability of your house. I have witnessed last-minute room renovations by sellers who neglect to keep account of their receipts, so losing out on deductions they could have easily claimed.
I usually advise clients to maintain a folder including all of their invoices and proof of payment. Patching a roof or replacing a water heater are two little repairs that can add up and raise your cost basis.
Your taxable profit decreases as your cost basis increases. And when you want to keep more money in your pocket, that’s just what we want.
If this is your first time selling, these 11 professional advice may also help you make the transaction more profitable and seamless.
3. Property Taxes
If you’re concentrating on staging and negotiating offers, it’s easy to overlook this one: property taxes. I always make sure to tell people that they can claim a deduction for the $10,000 in taxes they paid up until the selling date. This includes the prorated tax amount for the year you were the home’s owner.
You already have a deduction that you shouldn’t overlook if you’ve been paying your property taxes on time. To eliminate any uncertainty, I prefer to show clients exactly how to compute this section. When you file, it will be reflected, and it can significantly reduce your tax liability.
Maintaining accurate property tax records is easy, even if you’re not good with mathematics, and the benefits are real. It may surprise you to learn how much that small amount of planning can save you.
Knowing all the financial ramifications, including taxes, is essential for anyone thinking about doing a do-it-yourself sale. To steer clear of frequent mistakes, read these 10 things to know before selling your house on your own.
4. Mortgage Interest
Mortgage interest is one of the deductions that I observe homeowners underutilizing. It may surprise you to learn that, if you itemize your deductions, the interest you paid on your mortgage up to the sale date can actually lower your taxable income.
Interest on newer mortgage debt up to $750,000 can be written off under the 2017 tax legislation. Your mortgage can’t exceed $1 million if it was taken out before December 15, 2017. Since it might have a significant impact on their tax bill, I constantly advise clients to verify this.
Planning is crucial in this situation since mortgage interest is an itemized deduction, which only becomes beneficial if your total itemized deductions surpass the standard deduction, which in 2023 is $27,700 for married couples filing jointly. I frequently advise sellers to run the figures both ways because failing to do so could result in them losing money.
There is a WhatsApp channel that offers brief, useful insights that are ideal for a busy seller like you if you’re looking for rapid updates and advice on house selling tactics.
5. Capital Gains Exclusion
Let’s now discuss the capital gains exclusion, which I refer to as the big one. When you sell, this can have the most influence on your wallet, even though it isn’t strictly a deduction.
Here’s how it works: a capital gain is any profit you make from selling your house after deducting costs and mortgage payments. However, you can deduct up to $250,000 if you’re single and $500,000 if you’re married if you’ve lived in your house for at least two of the previous five years.
I usually suggest keeping a close eye on the total cost of your house, including the purchase price and any upgrades you’ve made.Realtors stress that this exception can be maximized by keeping accurate records of upgrades and selling expenses.
In general, you keep more money in your pocket and your taxable gain is smaller if your cost basis is bigger.
Just a heads up: it’s important to stay informed because lawmakers have talked about amendments that could affect the residency requirement in the future.
Have you sold a house and taken advantage of any of these deductions? Tell me about your experience in the comments section; I’d be interested in knowing what worked for you.
Additional Tips for Home Sellers
If I have one piece of advice for everyone, it’s that organization pays. Maintain a thorough log of all improvements, together with all invoices and receipts. When tax season arrives, you’ll be grateful.
I also recommend consulting a tax professional, even if you feel confident handling deductions yourself. Tax laws change, and a quick conversation with an expert can prevent costly mistakes.
Finally, think of these deductions as part of your overall selling strategy. They aren t just about numbers they re about making smart choices that put more money back in your pocket and reduce stress.
Final Thoughts
Selling your home can feel overwhelming, but understanding the right tax deductions gives you a real advantage. I ve walked many clients through this process, and the difference it makes in their bottom line is often surprising.
By tracking your selling costs, improvements, property taxes, mortgage interest, and capital gains, you can keep more of what you ve earned and reduce unnecessary stress.
Remember: a little planning goes a long way. Take a few minutes now to organize your records, and you ll thank yourself when tax season arrives. It s not just about saving money it s about making your home sale work for you.
Want more expert tips on selling your home and maximizing your profits? Check out ourReal Estate & Homeownershipsection for all the details.
Disclaimer:This article is for informational purposes only and is not tax advice. Tax laws change frequently, so consult a certified tax professional for guidance. Your individual circumstances may affect which deductions apply.
Contents Table
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1. Selling Costs Deduction
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2. Home Improvements and Repairs
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3. Property Taxes
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4. Mortgage Interest
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5. Capital Gains Exclusion
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Additional Tips for Home Sellers
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Final Thoughts
