5 Tax Deductions Home Sellers Can't Afford to Miss

For many homeowners, their home is their largest asset. And, when it comes time to sell, it’s important to squeeze all of the potential benefits out of your transaction.

But, did you know that some homeowners can make even more money off the sale of their home after closing? That’s right, and it involves making savvy money moves come tax time.

Keep reading to explore some of the potential tax deductions you can take when selling your home, and how they can help you to pad your bank account long after you’ve signed on the dotted line.

When you sell your home, there are often many expenses tied directly to the sale. Legal fees, escrow fees, real estate agent commissions, and advertising costs all fall under this umbrella.

In order to claim a deduction for these costs, you’ll need to use the sum of the expenses to offset the proceeds from your home’s sale. For example, let’s say you sold your home for a $100,000 gain but incurred $20,000 in selling costs, you would report the final capital gain as $80,000 on your tax return.

If you want to pursue this tax deduction, be sure to keep all your receipts from these expenses throughout the sales process. This information will help you prepare your tax returns later. Also, this option usually only applies if you’ve lived in the home as a primary residence for at least two out of the last five years.

If you made home improvements prior to the sale of your home with the intention of facilitating a smoother sale, you might be able to deduct those costs from your taxes.

Some home improvements that qualify for a tax deduction might include finishing a basement, installing solar panels, upgrading the countertops in your kitchen, and replacing the windows. Generally, the updates must be made within 90 days of closing, and they need to be actual improvements and not associated with standard home repairs.

Regular maintenance or repairs that help keep your home in working order don’t qualify for this deduction.

If you paid property taxes in the year leading up to your home sale, you can deduct the property taxes from your tax bill.

For example, let’s say you paid $5,000 in property taxes for 2024 before selling your home in November. After the sale, you can potentially write off the $5,000 you paid in property taxes through your itemized deductions.

For some taxpayers, itemizing deductions make sense. For others, it makes more sense to stick with the standard deduction. 

Generally, you’ll want the total of your itemized deductions to outweigh the standard deduction, otherwise it might not be worth itemizing. If you aren’t sure which works better for your situation, consider working with a tax professional.

If you paid mortgage interest during the year you sold your home, you can potentially deduct that cost from your tax bill.

Like property tax deductions, mortgage interest falls under your itemized deductions. With that, it doesn’t always make sense to pursue this deduction. 

But if your itemized deductions add up to more than the standard deduction, then it’s usually a good idea to itemize.

When you sell your primary residence, you qualify for a capital gains tax exclusion if you’ve lived in the home for a minimum of two out of the past five years. 

Capital gains represents the profits you receive from the sale of your home, after you’ve settled any outstanding mortgage payment.

For example, if you sell your home for $500,000 but only owe $150,000 on your mortgage, your capital gains would be $350,000.

When you sell your primary residence, you can exclude up to $250,000 of the capital gains if you are single. For married filers, the exclusion total is doubled to $500,000. With this exclusion, you’ll have a much smaller tax bill after your home’s sale.

Taking advantage of these tax deductions after your home sale can help you avoid wasting money. 

When you make the effort to capitalize on all of the potential benefits of selling your home, you’ll walk away with more jingle in your pocket which you can then use to build your wealth going forward.

It’s worth pointing out that navigating your tax documents after a home sale can be tricky. If you have any questions about your tax situation, it’s often helpful to work with a tax professional. 

They can help you nail down all of your tax deduction opportunities to avoid missing out on any potential savings.

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