What Is (and Is Not) Tax Deductible When You Sell a House

By 

Ben Mizes

Updated 

April 1st, 2019

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Tax reform has made it confusing as to what home sellers can and cannot deduct. Some deductions no longer exist, while others are only possible if you are able to itemize your deductions. This guide covers five of the most common tax deductions you can claim if you’re selling a home.

What is tax deductible when you’re selling a home? A lot of things, actually.

But the new tax law (the Tax Cuts and Jobs Act) is causing some confusion as to what you can legally deduct from your taxes. Selling a home is considered a “capital gain,” and the amount you receive will be subject to tax. Unless you claim the right deductions, you could be paying more than you need to.

When tax time comes, the last thing you want to do is leave money on the table. Make sure you claim the following tax deductions when you sell your house.

#1 - Selling Expenses

Selling a home can get expensive. Unless you’re using a flat-fee real estate agent, you could be paying up to 6% of your home’s selling price in commission alone. Escrow fees, legal fees, MLS listing fees, professional real estate photography, and other expenses can quickly eat into your profits. In addition, buyers may ask you to contribute to closing costs.

The good news is that whatever you have to pay to sell your home, you can deduct from your taxes. To qualify for this deduction, your home must be your principal residence, not an investment property. In addition, you must have lived in the home for at least two out of the past five years.

#2 - Home Repairs and Improvements

When you sell a home, you will likely have to make some home repairs or improvements to get it buyer ready. Many of these expenses can be deducted from your taxes, giving you all the more incentive to make the necessary changes that can sell your home faster, with a few stipulations.

In order to qualify for the deduction, you’ll need to make all repairs within 90 days of closing. This can put you in a time crunch that doesn’t leave much room for significant renovations. But it should be enough time to tackle the basics.

In addition, you need to understand the government’s definition of a repair vs a home improvement. Repairs are essential to maintaining the home, while improvements add value to the home.

The two are not treated the same under tax laws. Repairs can be immediately deducted in the same tax year as your home sale, but improvements will be deducted over the course of several years.

Here are some examples of repairs that are tax-deductible for home sellers:

  • Leaky roof
  • Replacing rotting trim
  • Replacing a smoke alarm
  • Removing mold from a bathroom

Home improvements may include any of the following:

  • Installing solar panels
  • Adding curb appeal
  • Upgrading countertops or appliances
  • Finishing a basement
  • Adding a patio or deck

The value of each home improvement will vary for tax purposes. To calculate the deduction, take the total cost of the improvement and divide it by its lifespan. For example, a new heating system that costs $10,000 and will last 20 years allows you to deduct $500 per year.

#3 - Property Taxes

Under the new tax law, you can deduct up to $10,000 in property taxes for the current year. Property taxes are only deductible if your property was assessed by the local government and you paid all of your previous year’s property taxes. In other words, you must be up to date on your taxes to qualify for the deduction.

#4 - Mortgage Interest

The new tax law still allows you to deduct your mortgage interest. However, homeowners can only deduct the interest on up to $750,000 of mortgage debt. If your debt exceeds this amount, you will not be able to deduct the full amount.

Keep in mind that mortgage interest is considered an itemized expense. Your total deductions will need to exceed the standard deduction, which is now $12,200 for single individuals, $18,350 for the head of household, and $24,400 for married couples filing jointly.

#5 - Moving Expenses

The new tax reform did away with moving expenses for everyone except active duty military members. If you’re a current military service member, you are allowed to deduct moving-related expenses. This can include mileage, moving supplies, moving company expenses, and other related costs.

How a Top-Rated Agent Can Help You Avoid Tax Trouble

You want to claim every deduction possible to maximize your profits, but at the same time, you don’t want to risk making an error that could land you in expensive legal trouble.

Partnering with an experienced real estate agent for guidance and support can help you uncover additional cost savings and opportunities to boost your profits, such as negotiations, tax write-offs, and more.

Ready to start exploring your potential tax deductions and maximize your savings? Connect with a top-rated Clever Partner Agent in your area today to get started.

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