Selling Your Home ?🏡 Tips for Taxes… On the Sale of A Home

You may be wondering if there are tax deductions when selling a home. Welp the answer is: Yep Yep!

So, you might remember way way back to 2017 and its new tax code, aka the Tax Cuts and Jobs Act TCJA, changed some rules for homeowners. Well, if you sold your home in 2024 (or are planning to in the future), your tax deductions can still amount to significant savings.

Want a full rundown of all the deductions and exemptions or other write-off at a home seller’s disposal? Keep reading to make sure you don’t miss any of them!

Selling Costs/Expenses

These deductions are allowed IF they are directly tied to the sale of the home AND you lived in the home for at least two of the five years preceding the sale. Another caveat: The home must be a principal residence and not an investment property.

• Abstract fees (abstract of title fees)
• Charges for installing utility services
• Legal Fees

            -   title search
            -   preparing the sales contract and deed

• Recording fees
• Survey fees
• Advertising Costs
• Home Staging Fees
• Owner's title insurance

Take note that you can’t deduct these costs in the same way as, say, mortgage interest. Instead, you subtract them from the sales price of your home, which in turn positively affects your capital gains tax.

Costs Owed By the Seller that You Paid

You can include any amounts the seller owes that you agree to pay (as long as the seller doesn’t reimburse you) such as:

·              ·         Back interest owed by the seller
    ·         The seller's title recording or mortgage fees
    ·         Charges for improvements or repairs that are the seller's responsibility (for example, lead paint               removal)

          ·         Sales commissions (for example, payment to the seller's real estate agent                                           ·         Moving expenses (if you are active military)

       

Home Improvements & Repairs

Improvements add to the value of your home and extend the life of the home. If you renovated a few rooms to make your home more marketable (and of course so you could land a higher sales price), you can deduct those upgrade costs as well. This includes painting the house or repairing the roof or water heater.

BUT (you knew that was coming right) there’s a catch…timing.

If you needed to make home improvements to sell your home, you CAN deduct the expenses as selling costs so long as they were made within 90 days of the date you closed on the sell.

Property taxes

This deduction is capped at $10,000. So, if you were paying your property taxes up to the point when you sold your home, you can deduct the amount you paid in property taxes up to $10,000.

Mortgage interest

Similar property taxes, you can deduct the interest on your mortgage for the portion of the year you owned your home.

Keep in mind that under the 2017 tax code, new homeowners (and home sellers) can deduct the interest on up to only $750,000 of mortgage debt, though homeowners who got their mortgage before Dec. 15, 2017, can continue deducting up to the original amount up to $1 million.

Note that the mortgage interest and property taxes are itemized deductions. What that means is that for it to work in your favor, all of your itemized deductions need to be greater than the new standard deduction amount provided as a “given” by the IRS to reduce taxable income, which the Tax Cuts and Jobs Act nearly doubled when it went into effect.

Capital Gains Tax

The capital gains rule isn’t technically a deduction (it’s an exclusion), but I believe you’re still going to like it.

Just so you know, capital gains are your profits from selling your home (whatever cash is left after paying off your expenses, plus any outstanding mortgage debt). And yes, you guessed it! These profits are taxed as income. BUT wait there’s more good news- You can exclude up to $250,000 of the capital gains from the sale if you’re single, and $500,000 if married. The only big catch is you must have lived in your home at least two of the past five years. Don’t shoot the messenger!

To complicate matters more, capital gains are calculated on the cost basis of your home, not the original purchase price.

What’s cost basis? Say you purchase a home for $400,000 (this is the original purchase price), then spend $100,000 on improvements (this adds to the original purchase price), you would have a cost basis of $500,000. A married couple could then sell the home for $500,000 (after living there two years of course) without having to pay any capital gains taxes.

In other words, the higher your cost basis, the smaller your tax bill once you sell. Just remember to keep track of every single home improvement receipt. Very important! 

Finally, look for the rules of this exemption to possibly change in a future tax bill. But don’t worry, we will be here to help decipher the tax codes, rules, lingo, and all for you!

If you know anyone who would like help in this area, don’t keep the good stuff for yourself, share and pass the word along that we are here to serve!

 

➡️ Questions about your taxes and need to speak to a licensed professional? 

Book a consultation HERE.

Lloydetta Bryant, EA, MBA is your Revenue Reset Partner and Tax Expert who will work diligently to find the right solution for your specific tax situation. As an Enrolled Agent licensed through the IRS, Lloydetta can step in on your behalf to advocate for you. As a content creator on YouTube, you’ll find that focus on helping black women-led businesses with Solutions Beyond Taxes. Although we are a virtual firm,  Ethical Tax and Business Services is located in the Savannah/Richmond Hill areas, and can serve taxpayers in all 50 states by providing tax services from compliance to representation and the expertise needed to get the job done.

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