5 Tax Deductions When Selling a Home

5 Tax Deductions When Selling a Home

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tax deductionsThe Tax Cuts and Jobs Act has changed some of the rules for homeowners. Rest assured, however, your tax deductions when you file with the IRS can still be a sizable amount if you are planning to sell your home. Here are five things to consider.

Selling Costs

These tax deductions are allowed as long as they are:

  • Directly tied to the sale of the home
  • You lived in the home for at least two out of the five years before the sale
  • The home is a principal residence and not an investment property

You can deduct any costs associated with selling the home, including

  • Legal fees
  • Escrow fees
  • Advertising costs
  • Real estate agent commissions
  • Home staging fees

Remember, you can’t deduct these costs the same way you would mortgage interest. You subtract these tax deductions from the sales price of your home, instead. This will positively affect your capital gains tax.

Home Improvements and Repairs

Renovating a few rooms could fetch you a higher sales price. If you did renovate a few rooms to make your home, you could also deduct the upgrade costs. This includes:

  • Painting the house
  • Repairing the roof
  • Replacing the water heater

You can deduct the expenses of any home improvements you needed to make in order to sell your home as selling costs. The catch, however, is that it all boils down to timing. These only count as tax deductions if they were made within 90 days of the closing.

Property Taxes

Have dutifully been paying your property taxes up to the point when you sold your home? Then, you get to deduct the amount you paid in property taxes up to $10,000.

Mortgage Interest

You can deduct the interest on your mortgage, just like property taxes, for the portion of the year you owned your home. Remember, under the new tax code, new homeowners, and home sellers, can deduct the interest on only up to $750,000 of mortgage debt. Homeowners that received their mortgage before Dec. 15, 2017 can keep deducting up to $1 million.

The mortgage interest and property taxes are itemized tax deductions. This means that all of your itemized deductions need to be greater than the new standard deduction for it to work in your favor. The Tax Cuts and Jobs Act has nearly doubled the standard deductions to:

  • $12,200 for individuals
  • $18,350 for heads of household
  • $24,400 for married couples filing jointly

Capital Gains Tax for Sellers

Capital gains aren’t technically tax deductions. It’s an exclusion. You will still like it, however.

Capital gains are your profits from selling your home. The profit is any cash that is left after paying off your expenses and any outstanding mortgage debt. These profits are taxed as income. There’s good news, however. If you’re single, you can exclude up to $250,000 of the capital gains from the sale. It’s $500,000 if you are married. The catch is you need to have lived in your home for at least two of the past five years.

It is always best to consult with a real estate accountant to be sure that you understand the tax benefits and tax deductions of selling a Florida home. Feel free to contact us for more information.

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