There are some tax deductions you can take when selling your home.
Cervone, Deegan knows that while we are in tax season it is worth mentioning that there can be some great tax benefits for those who are selling their homes. Whether you sold in 2020 and are preparing your taxes now or if you are selling this year then be sure to make note of these important things that you can take advantage of.
If you are selling your primary residence and have lived in it for two of the five years leading up to the sale then you can deduct some expenses associated with the sale. That can include things like legal fees, ad costs and real estate commissions.
This can be another great way to save if you made improvements right before the sale. Perhaps it was a paint job, new water heater or many miscellaneous items that added up. Anything that was done to improve the home and was done within 90 days of the closing can be deducted as selling costs. Be sure to save all of your receipts!
Taxes can be deducted as well but are capped at the amount of $10,000 which is still a sizable amount.
Similar to mortgage interest you can also deduct the interest paid on your mortgage for the portion of the year that you owned your home. With tax code changes a few years ago homeowners can deduct interest on up to $750,000 of mortgage debt (up to $1 million for those who got their mortgage before 12/14/17). Just note that you will need to weigh this against the new standardized deduction that went into effect more recently. That was $12,400 for individuals, $18,650 for heads of households or $24,800 for married couples filing jointly.
Capital Gains Tax
This is a big one for many especially as home values have increased so greatly in recent years. Capital gains are your profits from selling your home after paying your expenses and mortgage debt. If you have lived in your home for 2 of the past five years leading up to the sale then you can exclude up to $250,000 of gains if you are single or $500,000 if you are married. An important thing to remember is that gains are calculated on the cost basis of your home, not the purchase price. So essentially if you made improvements then you will want to keep receipts of the work you have done as that adds to your purchase price.