Here’s some good news : The IRS grants some tax deductions for home sellers. Getting the deductions requires that you itemize your taxes, which is a tedious job, but one that is probably worth your while. Here are five tax deductions that you should take this year.
Selling costs
If you don’t qualify for the 121 exclusion, you will owe taxes on any profit, so make sure you deduct all your selling costs from your gain. You can deduct the following : Your real estate agent’s commission, legal fees, title insurance, inspection fees, advertising costs, escrow fees, and legal fees. There is another consideration – you could qualify for a partial exclusion if you sell your home due to circumstances involving divorce, change in employment, change in health or unforeseen circumstances.
Moving deduction
If you have to sell your home because you’re relocating for work, you might be able to deduct some of your moving expenses. Deductions include transportation costs, travel to a new place, storage costs and lodging costs.
Property tax deduction
You can deduct your property taxes for the portion of the year that you owned the home. Deduct the taxes up to, but not including the date of sale. The buyer pays beginning from the sale date.
Home improvements
It’s a sad fact that you sometimes need to improve your home – not for your own benefit and enjoyment, but for the home’s future owners. If you make home improvements that help sell your home (like replacing a leaky roof or defunct HVAC system), and if they are made within 90 days of the closing, they are considered selling costs, which are deductible.
Points
If you paid mortgage points to lower your interest rate when you refinanced your home, you might qualify for an additional deduction. Because you can deduct a proportional share of the points until the loan is paid, when you pay off the loan through a sale, you can deduct the remaining value of those points.
What can’t you deduct?
Tax deductions are fickle. They can vary from state to state and from year to year. Home sellers should check with a tax expert to confirm the deductions are still available at the time of the sale.
Taxes can be confusing
There is also some confusion regarding deductions. Many sellers thank that they can deduct, but can’t. The biggest misconception concerns repairs, and anything done in the course of maintaining property for normal use is nondeductible. The same goes for “phantom labor”, in which you the work of constructing your home on your own. Although you may have worked really hard, you still cannot deduct your sweat equity come selling time.
