With Tax Season Approaching, Here’s What Home Sellers Can Write Off

Tax season is upon us, and if you sold a home last year, you’re probably wondering how that will affect your tax bill.

Will you have to pay capital gains tax? Can you write off your real estate agent’s fee? How will your property tax figure in?

Well, thankfully, there are several expenses that home sellers can write off. Here’s how to ensure you’re doing what you can to lower your tax bill.

Find any records and documents pertaining to the home sale.

As with any and all expenses related to taxes, you’ve got to have documentation just in case the IRS decides to question that $5,000 contractor bill.

Before you start doing your taxes, it’s a good idea to gather all the records you’ll need:

  • Your closing statement
  • Your 1098 form, which records your mortgage interest payments
  • Your 1099S form, which records capital gains, if you received one
  • Documents proving your home was your primary residence
  • Receipts and records of any work done on the home, including DIY projects

Depending on your situation, you may have additional documentation to find—it’s always best to check with a CPA or other tax professional if you think this may be the case.

Look for these write-offs:

Capital gains exclusion

Capital gains tax is levied on any profit from the sale of a home that was your primary residence, and that exceeds $250,000 for a single tax filer, and $500,000 for a married couple. If you made less than these amounts on your home sale, then you don’t need to pay capital gains tax.

Most home sellers, therefore, qualify for the capital gains tax exclusion, which is good news—the capital gains tax rate can be up to 15 percent.

Mortgage interest and property taxes

The amount you paid in mortgage interest and property taxes are deductible if you itemize deductions, according to TurboTax.

Major home improvements

While the cost of things like paint and general maintenance cannot be used to decrease your tax bill, the cost of certain major home improvements can be added to the original value of your home in order to increase its cost basis.

This is really only useful if you do not qualify for the capital gains tax exclusion. If you earned more than $250,000 in profit on the sale of your home, then you can add the cost of renovations like adding a bedroom, replacing a water heater, and other specific improvements that the IRS has designated, to the price of your home when you purchased it in order to decrease the net profits you made—and thereby, decrease the amount of capital gains tax you need to pay. 

Agent’s fees, inspection fees, legal fees, escrow fees, administrative fees, and advertising fees

The fees associated with the act of selling your home, from what you paid your agent to any additional money you spent to advertise your home, pay for a closing attorney, etc. can be deducted. 

If you need help itemizing these things, your agent should have records of any expenses he or she billed you for.

Selling a home can make your taxes more complicated, but there’s plenty you can write off. The key is to keep all documentation and stay organized. Happy filing!