The biggest tax benefit available to home sellers is an exemption against capital gains taxes on any profit you make on the sale up to $250,000 ($500,000 if married and filing a joint return). You must have lived in the home as your personal residence for 2 out of the last 5 years before the sale. If you meet these criteria, any profit you make on the home up to $250,000 is exempt from taxation under Section 121 of the U.S. tax code.
If you do not qualify for the Section 121 exclusion, you will have to pay taxes on any profit you make on the sale, but you can deduct your selling costs from your gain which should lower your tax bill. Selling costs that you can deduct include your real estate agent’s commission, legal fees, title insurance, inspection fees, advertising costs and escrow fees.
If you make home improvements that help sell your home, such as painting or replacing a leaky roof, and if they are made within 90 days of the closing, they are considered selling costs and are also deductible.
If you have to sell your home because you are relocating for employment, you may be able to deduct some of your moving costs. These deductions could include transportation costs, travel to the new place, and storage and lodging costs. As a seller, you can also deduct your property taxes for the portion of the year that you owned the home. You can deduct these taxes up to, but not including the date of the sale. The buyer pays the taxes beginning from the sale date. If you refinanced your home and paid mortgage points to lower your interest rate, 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.
Tax deductions can change, so it is important to check with your tax preparer to make sure you are taking advantage of all the deductions available to you.
Please note: We are not intending to provide tax advice. Consult a tax attorney or accountant for more information regarding your individual situation.