You sold your house last year (congratulations!), and now that tax season is rolling around, you have some questions about what’s tax deductible when you sell your house. What can you expect in terms of an elevated tax return, or should you brace yourself to pay extra?
Many expenses are tax deductible when selling a house, including realtor commission, property taxes, and title fees. Beyond just standard deductions, there are many other ways to reduce your tax liability when selling, such as the capital gains exclusion. Plus, some homeownership costs may be deductible in the year you sell, which could further reduce your tax bill.
The best way to figure out how you could reduce your tax liability when selling a home is to first understand the differences between deductions, exclusions, and basis adjustments. We’ll look at those differences below and dive into other things you should know about saving on taxes when selling a house.
Quick answer
When selling a home, real estate tax deductions fall into one of three buckets: Deductions that reduce capital gains, expenses that are deductible if you itemize them, and expenses that aren’t deductible.
This chart breaks down which buckets some common home selling expenses fall into:[1]
| Reduces capital gain | Deductible if you itemize | Not deductible |
|---|---|---|
|
|
|
However, keep in mind that this chart largely only applies if you’re selling a primary residence. Rules differ for other situations, such as if you’re selling a rental or investment property. You should always talk to a tax professional to get advice tailored to your circumstances.
First, know the difference: Exclusions vs. deductions vs. basis
Knowing the difference between capital gains exclusions, itemized deductions, and basis adjustments/expense offsets will go a long way in helping you maximize your tax savings when selling your primary residence.
Capital gains exclusion
Ashley Akin, CPA at CEP DC, says,“One of the most important rules is the Section 121 capital gains exclusion. This rule allows many homeowners to avoid tax on part of their profit.”
Single sellers can exclude up to $250,000 of home sale profit if they qualify for the exclusion, and married couples filing jointly can exclude up to $500,000.
“To qualify, you usually must have owned and lived in the home for two of the last five years before selling it. For many homeowners, this rule removes all of the tax,” Akin adds.
Itemized deductions
Itemized deductions help reduce your ordinary taxable income and are available in the year you sell. You can claim them on Schedule A. Michael Feldman, Founder of No Tax Compromise, explains that: “Itemized deductions apply while you own the home. Mortgage interest and property taxes fall into this group. You claim these each year on your tax return.”
Keep in mind that if you take the standard deduction, itemized deductions won’t reduce your tax bill.
Basis adjustments
Capital improvements increase your “adjusted basis,” which is the starting cost of your home for tax purposes. So, if you bought a home for $300,000, but made $50,000 in capital improvements, your adjusted basis goes up to $350,000.[1]
By increasing your adjusted basis, you effectively reduce your gain, leading to a lower tax bill. You can claim this on Form 8949 and Schedule D.
You should refer to the IRS’s worksheets in Publication 523 (Selling Your Home) for a detailed guide for calculating gains and exclusions in a home sale.
Selling expenses that can reduce your taxable gain
Selling expenses, including some closing costs, should not be overlooked as they can help reduce your taxable gain.
As Akin says, “Also overlooked by many is that the cost of selling a property can reduce the taxable profit or loss. Real estate commissions, legal fees, title costs, advertising, staging and costs to correct things found during the home inspection or repairs requested by buyers can all reduce the gain from the sale.”
Unlike the itemized deductions we talked about above, selling expenses aren’t part of your Schedule A deductions. Instead, they’re found on Page 2, Sections A, B, and H of your Closing Disclosure (or HUD-1 Settlement Statement) and are subtracted from your sale price to arrive at your “Amount Realized.”
In effect, selling expenses work in conjunction with your adjusted basis. By increasing your adjusted basis, such as by investing in capital expenses, and by deducting selling expenses, you decrease your total capital gains tax.
Worked example: Selling a $700,000 home
To see how these concepts work in practice, let’s say you bought a home in 2015 for $350,000.
In 2020, you added a kitchen remodel for $40,000 and then sold the home in 2025 for $700,000, with $25,000 in selling expenses.
Subtracting the $25,000 in selling expenses from the sale price, your amount realized is $675,000. Your adjusted basis begins at $350,000 (what you bought the house for in 2015), but adding the $40,000 kitchen remodel brings your adjusted basis to $390,000.
Subtract the adjusted basis from your amount realized and you get a gross capital gain of $285,000. If you’re not married or not filing jointly, your capital gains exclusion is $250,000, leaving you just $35,000 of gains you’ll have to pay taxes on. But if you’re married and filing jointly, your exclusion goes up to $500,000, meaning you pay no taxes on your $285,000 gain.
Improvements vs. repairs: what adds to basis (and what doesn’t)
While we’ve mentioned that capital improvements can increase your adjusted basis, we need to dive deeper into what actually counts as a capital improvement.
As Christopher J. Picciurro, CPA, Executive Officer & Co-Founder of Integrated Financial Group, says, “One of the most common misconceptions I see is homeowners assuming routine repairs increase their basis. Maintenance generally does not qualify, while improvements that add value or extend the life of the home typically do.”
Here’s a breakdown of some common capital improvements (which do add to your basis) vs. repairs and maintenance (which do NOT add to your basis):
| Capital improvements | Repairs and maintenance |
|---|---|
|
|
While it’s often easy to distinguish between a capital improvement and a repair or maintenance work, there are some gray areas. The key question if you’re confused is to ask whether the work in question: adds value to the property, extends its useful life, or adapts the property to a new use. If yes, it’s likely a capital improvement.
For example, a full roof replacement counts as a capital improvement. But simply replacing a few shingles does not. Likewise, adding a new HVAC system is a capital improvement. Repairing your existing one is not.
To make sure you’re claiming capital improvements correctly (and to help you in case you get audited), you should keep the following improvement records on hand for at least three years after you file:
- Contractor invoices and signed contracts
- Building permits
- Certificates of occupancy
- Credit card and bank statements (these should match the invoices)
- Manufacturer/warranty documents
- Date-stamped before/after photos
Homeownership costs that may be deductible in the year you sell (if you itemize)
Some homeownership costs can also be deducted in the year you sell your home, but you’ll need to itemize them. If you take the standard deduction, like many people do, then these itemized deductions won’t change your tax bill. The standard deduction amounts for 2025 are:[2]
- $15,750 for single or married filing separately
- $31,500 for married couples filing jointly or a qualifying surviving spouse
- $23,625 for head of household
If your homeownership costs exceed these amounts, you’re better off taking them as itemized deductions. Homeownership costs are considered Schedule A deductions rather than capital gain adjustments.
Some homeownership costs you may be able to deduct include:
- Mortgage interest: For loans worth up to $750,000 and originated after December 15, 2017, you can deduct the interest.[3] Remember that proration at closing is common, where you pay mortgage interest through your closing date and your buyer takes over from there. Your lender will provide you with Form 1098 that will show your interest paid.
- Property taxes: These can be deducted on Schedule A and are typically prorated at closing: you deduct your portion based on the days you owned the home and the buyer deducts from the day they took over. Property tax deductions are subject to the SALT (State and Local Tax) cap, which is normally $10,000 but has been temporarily increased to $40,000 from 2025 to 2029.[4]
- Mortgage points: If you paid points when refinancing (but not when purchasing) in order to reduce your interest rate, they must usually be deducted over the life of the loan. However, if you sell your house before you’ve fully deducted them, you may be able to deduct the remaining points. You should talk to your CPA about the best path forward.
What’s not deductible when you sell (common myths)
We’ve already talked about how repairs and maintenance are generally not tax deductible when selling a house. But there are many other expenses that are likewise not deductible, despite some popular myths insisting they are. Here are a few:
| Myth | Reality |
|---|---|
| Moving expenses | For tax years after 2017, moving costs are no longer deductible unless you’re active duty military.[5] |
| Down payments | Down payments are considered a capital investment, not an expense. |
| Homeowners insurance | Generally not deductible, except for some rentals. |
| Utilities. | No, ongoing living expenses aren’t deductible. |
| HOA dues | No, HOA fees are not deductible. |
| Routine maintenance | As mentioned, repairs and maintenance generally aren’t deductible unless part of a larger improvement. |
| Mortgage payoff | While interest is deductible, paying off your principal is not. |
Special situations
Most of the above information applies when you’re selling your primary residence in a traditional transaction. However, tax deduction rules change in special situations.
- Second home/vacation property: The capital gain exclusion doesn’t apply to second homes or vacation properties, although you can still reduce your taxable gains by deducting selling expenses.
- Rental/investment property: Capital gain exclusion doesn’t apply and any depreciation you claim while renting is subject to depreciation recapture of up to 25%. A 1031 exchange may be able to help lower your tax liability, but you should talk to a CPA.
- Home office/depreciation recapture: Your home office may not qualify for full exclusion and may be subject to depreciation recapture if you claimed it for a portion of your primary residence. Home office deductions can get complicated, so talk to a tax professional.
- Divorce: Transferring a house to a spouse or ex-spouse as part of a divorce generally means there is no gain or loss and the receiving spouse takes over the original adjusted basis. Also, the receiving spouse can sometimes include the time their former spouse lived in the house to meet the residency requirements of at least two of the past five years for the capital gains exclusion.
- Inherited property: Generally, inherited homes receive a stepped-up basis. This means that gains are calculated from the home’s value as of the decedent’s death rather than when they first bought the property. The result is that if you sell quickly after inheriting, your taxable gains will be minimal.
- Form 1099-S: A Form 1099-S is automatically issued by the closing agent if the gross proceeds of the sale exceed $250,000. If you receive a Form 1099-S, you must report the sale on Form 8949 and Schedule D regardless of whether or not you have taxable gains. If you didn’t receive a Form 1099-S but you have a taxable gain, you must still report it on your tax return. Talk to your CPA for guidance.
What to save for taxes (seller checklist)
To maximize your deductions and limit your tax liability, you should hold on to all relevant documents from your home sale. Here are the documents you should save and give to your tax preparer:
- Closing disclosure/HUD-1 Settlement Statement (from both the sale and the purchase)
- Permits, receipts, and invoices for any capital improvements
- Contractor agreements
- Invoices for sale-related services
- Form 1099-S (if issued)
- Form 1098 (mortgage interest statement)
- Property tax records
- Appraisals (if relevant)
- Documents relating to home office, rental use, or divorce/inheritance
FAQ
What expenses can be deducted from the sale of property?
You can generally deduct expenses related to the sale of your property, such as realtor fees, transfer taxes, staging, and title fees. You can also lower your capital gain by deducting the cost of major improvements and using the capital gain exclusion.
What is the most overlooked tax break?
Perhaps the most important tax break is the capital gains exclusion. On the sale of your primary residence, $250,000 of profit is excluded from taxable gains (or $500,000 if you’re married). The result is that many homeowners owe nothing when they sell.
What is the 5 year rule for capital gains tax?
To qualify for the capital gains exclusion, you must have owned and lived in your residence for two out of the last five years. There are exceptions, however, such as after a divorce when you can potentially include your ex-spouse’s time at the property toward qualification.
What is the $3000 capital loss rule?
If your capital losses are greater than your capital gains in a given year, you can deduct up to $3,000 of the loss against your ordinary income and carry over the remaining losses to future years. The capital loss rule only applies to the sale of investment properties, not primary residences.