There are a number of tax deductions available to you if you’re selling your primary residence. These deductions can significantly lower your final tax bill by reducing either your capital gains or income tax liability.
However, tax law changed dramatically in 2017 when President Trump signed the Tax Cuts and Jobs Act into law, which eliminated a number of tax deductions. As a result, expenses that you were once able to claim are no longer eligible or the requirements for claiming them have become more strict.
Below we’ll look at three popular tax deductions you can still take when selling your home, as well as some expenses that are no longer eligible. However, tax law is complex, and there are many exceptions to the rules we discuss below. That’s why we always recommend consulting a tax professional for advice that is tailored to your unique situation.
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3 tax deductions to take on your home sale
1. Home sale expenses
You can deduct many of the expenses associated with selling a house, such as closing costs and selling expense. If you’re selling your primary residence, you may also be able to take advantage of the capital gains tax exemption, which can eliminate some or even all of the capital gains tax you’d otherwise owe.
Keep in mind that many of these expenses are only allowed if you’re selling a primary residence. For tax purposes, a primary residence is a home you’ve owned for at least two years and lived in for at least two of the past five years. There are also other restrictions, such as how recently you’ve sold your previous home and your filing status. Different rules also apply to active military personnel, divorcing spouses, and some government officials. Learn more about how capital gains tax works on a primary residence.
Closing costs
Some of the closing costs that are tax deductible include:
- Title/escrow fees
- Settlement fees
- Origination fees
- Owner’s title insurance
- Survey fees
- Legal fees
- Realtor commission
Some closing costs can be added to the cost basis of your home, which will reduce the amount of capital gains tax you’re required to pay when you sell Mortgage interest and property taxes paid at closing may be deductible as itemized deductions. These deductions can only be applied to capital gains made on the sale of a primary residence, not an investment property or a second home.
Marketing and advertising costs
Advertising expenses can be deducted from your capital gains in order to reduce your tax burden. Such expenses that are tax deductible include:
- Photography
- Staging
- Advertising
- Listing fees
However, when it comes to staging, you can’t deduct for services that cross the border into home improvements. For example, you likely won’t be able to deduct staging expenses for substantial improvements, such as a new fireplace or major landscaping. However, these expenses may be deducted as home improvements, which we’ll address in the next section.
2. Home repairs and improvements
If you don’t qualify for the primary residence tax exemption, home improvements can help lower your capital gains tax bill by increasing your home’s cost basis, which is the amount you paid for your property plus any money you’ve invested in improving your property. By increasing the cost basis, you decrease your capital gains, which means you pay less in taxes.
For example, let’s say you bought a house for $300,000 and invested $50,000 in improvements. Your cost basis would then be $350,000. If you then sell your house for $400,000, you’ll deduct the full cost basis from the selling price to give you a taxable capital gain of $50,000. If you hadn’t invested $50,000 in home improvements, your cost basis would be $300,000 and you’d have to pay capital gains taxes on $100,000 rather than $50,000 (if you don’t qualify for the primary residence tax exemption).
Keep in mind that the IRS defines improvements and repairs differently, with and improvements are generally the only expenses eligible for being added to your cost basis. While it can sometimes be difficult to differentiate between an improvement and a repair, improvements tend to be more significant investments, such as the following:
- Adding a new room
- Renovating a room
- Major landscaping
- Roof replacement
- HVAC upgrades
- New security systems
- Carpet replacement
- New insulation
- Built-in appliances
- New plumbing systems
Repairs, on the other hand, tend to be smaller in scale, such as filling holes in the wall, a leaky faucet, fresh paint, or new window panes. However, some repairs can add to your cost basis if they are part of a larger home improvement, such as new kitchen cabinets that are part of an entire kitchen remodel.
3. Property taxes
Property taxes are also deductible when you sell your house. You can deduct the amount you paid in property taxes over the last year up to a maximum of $10,000 for all state and local taxes. You will need to be up to date on your taxes to qualify, however.
Keep in mind that transfer or stamp taxes are not deductible when you sell a house. However, these taxes were included in your cost basis when you first bought your home, so they will help reduce your overall capital gains tax bill that way.
Tax deductions for investors:
The information above largely applies to individuals selling their primary residence. If you’re selling an investment property, the deductions available to you are very different.
The biggest difference is that the capital gains tax exemption is only available for primary residences, not investment properties. Holding onto a property for less than a year (which is common in house flipping) will also incur a bigger tax liability.
However, investors also have opportunities to lower their taxes that aren’t generally available to private homeowners. For example, you can defer capital gains tax by swapping your current investment property for a new one through a 1031 exchange.
Bonus: Mortgage interest
You can deduct the mortgage interest you paid up to, but not including, the date of your home’s sale. However, you can no longer deduct your mortgage insurance premiums or your home equity loan interest.
The limits on how much mortgage interest you can deduct depends on the size of the mortgage and when you bought your house. If you bought it before December 16, 2017, you can deduct the interest paid on the first $1 million of your mortgage or the first $500,000 if you’re married but filing separately. If you bought it after that date, you can only deduct the interest on the first $750,000 of the mortgage (or $375,000 if married but filing separately).
Also, mortgage interest is an itemized deduction, meaning it only makes sense to take the deduction if your total itemized deductions are more than the standard deduction. For 2024, the standard mortgage interest deduction is $29,200 for married spouses filing jointly, $21,900 for head of household, and $14,600 for single filers or married people filing separately.
What you can't deduct on your home sale
Moving expenses
Moving expenses are no longer tax deductible. The 2017 Tax Cuts and Jobs Act eliminated the moving expenses as a tax deduction for most people. This change, however, is only temporary and applies only to the tax year from 2018 to 2025. Barring another tax change, the moving expenses will return for tax year 2026.
You can still apply for the moving expenses deduction if you’re amending a previous return prior to 2018 or if you’re an active military personnel. Some states, such as California and New York, also continue to allow you to deduct moving expenses on your taxes.
If you can claim moving expenses, they must be deemed reasonable and necessary to your move. Examples of such expenses include:
- Gas
- Packing
- Insurance
- Truck rental
- Parking fees
- Tolls
- Hotels (for long-distance moves)
You must also meet time and distance tests. For the time test, you’ll need to start at your new job and work full-time there for at least 39 weeks within the first 12 months of your move date. The distance test states that your new place of employment must be at least 50 miles from your old home.
HOA fees
For most people, homeowner association (HOA) fees, including special assessments, are not tax deductible. HOA fees are paid by homeowners who live in a condominium, gated community, or other type of planned development to pay for maintenance, landscaping, enforcement of community rules, and upkeep.
If you pay HOA fees on your primary residence, then there is no option to deduct them on your taxes. The only exception is if you pay HOA fees on a rental property, in which case they can be claimed as deductions because they are considered a business expense.
Mortgage insurance premiums
Mortgage insurance premiums—unlike mortgage interest—are no longer tax deductible as of 2022. Starting in tax year 2007, mortgage insurance premiums were considered a type of mortgage interest and therefore tax deductible. The law that made mortgage insurance premiums tax deductible was extended over the years until it was finally allowed to expire.
You can only apply for a mortgage insurance premium tax deduction if you’re amending a tax return from 2007 to 2021. It is also possible that Congress could retroactively extend the tax deduction beyond 2021, although so far it has opted not to do so.