Five Sweet Tax Deductions for Sellers

Selling

In a recent Florida Realtor magazine, the article title “5 Sweet Tax Deductions When Selling a Home” caught our attention, and we thought the information could be useful to you.  Many little decisions bring you to deciding it is the right time to sell your house and knowing there could be some tax deductions that could help you save some money after the sale could tip the scale in favor of selling now.  Check out the article highlights below.  The Sister Act and the entire Erdmann Team is standing by to serve you – contact us today to learn more about our proven marketing plan would work for you. 

5 Sweet Tax Deductions When Selling a Home

Florida Realtor, October 1, 2019

You may be wondering if there are tax deductions when selling a home. And the answer is: You bet!

The new tax code can be confusing but there are tax deductions or exemptions – like legal fees, escrow fees or other costs directly tied to the sale of your home.

But there’s also a new tax code – aka the Tax Cuts and Jobs Act – causing quite a bit of confusion this filing season. Rest assured that if you sold your home last year (or are planning to in the future), the tax deductions may amount to sizable savings when you file with the IRS.

1. Selling Costs
Good news! These deductions are still allowed under the new tax law as long as they are directly tied to the sale of the home and a married couple – or a single taxpayer – lived in the home for at least two out of the five years preceding the sale. Another caveat: The home must be 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, and real estate agent commissions,” says Joshua Zimmelman, president of Westwood Tax and Consulting in Rockville Center, N.Y.

This could also include home staging fees, according to Thomas J. Williams, a tax accountant who operates Your Small Biz Accountant in Kissimmee, Fla.

Just remember that you can't deduct these costs in the same way as, say, mortgage interest. Instead, you subtract them from the sales price of your home, which in turn positively affects your capital gains tax.

2. Home improvements and repairs
Score again. The new tax law left this deduction as well. If you renovated a few rooms to make your home more marketable (and so you can fetch a higher sales price), now you can deduct those upgrade costs as well. This includes painting the house or repairing the roof or water heater.

But there’s a catch, and it all boils down to timing.

“If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing,” says Zimmelman.

3. Property taxes
This deduction is still allowed, but your total deductions are capped at $10,000, Zimmelman says.

If you were dutifully paying your property taxes up to the point when you sold your home, you can deduct the amount you paid in property taxes this year up to $10,000.

4. Mortgage Interest
This deduction is still allowed, but your total deductions are capped at $10,000, Zimmelman says.

If you were dutifully paying your property taxes up to the point when you sold your home, you can deduct the amount you paid in property taxes this year up to $10,000.

Note that the mortgage interest and property taxes are itemized deductions. This means that for it to work in your favor, all of your itemized deductions need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled to $12,200 for individuals, $18,350 for heads of household, and $24,400 for married couples filing jointly (for comparison, it used to be $12,700 for married couples filing jointly).

5. But what’s up with capital gains tax for sellers?
Lawmakers tried to change the capital gains rule, but it managed to survive – so it’s still one home sellers can use. It isn’t technically a deduction (it’s an exclusion), but you’re still going to like it.

As a reminder, capital gains are your profits from selling your home – whatever cash is left after paying off your expenses, plus any outstanding mortgage debt. And yes, these profits are taxed as income. But here’s the good news:

You can exclude up to $250,000 of the capital gains from the sale if you’re single, and $500,000 if married. The only big catch is you must have lived in your home at least two of the past five years.

However, look for the rules of this exemption to possibly change in a future tax bill.

Ralph DiBugnara, president of Home Qualified and vice president at Residential Home Funding, says lawmakers might push to change this so that homeowners would have to live in the property for five of the past eight years, instead of two out of five.