Paying taxes is never fun, but you may be able to find ways to keep a little extra money in your pocket when filing. Keeping tabs on specific transactions related to your home throughout the year can help you minimize your capital gains tax obligation if you happen to make a profit on the sale of your home. If you’ve recently sold your property, there are several different tax deductions you’ll want to be aware of, including the following.
Home Selling Expenses
There are plenty of expenses that are associated with selling real estate, but the good news is that much of it can be deducted when it comes time to file your taxes. Here are just some of the expenses related to selling that you may be able to write off:
- Real estate agent commissions
- Marketing fees
- Administrative costs
- Escrow fees
- Home inspection fees
- Home staging fees
- Legal fees
- Title insurance
If you make a profit on the sale of your home, being able to deduct many of the selling costs can help offset and capital gains taxes you might owe.
You may be eligible to deduct your property taxes for the portion of the tax year that you owned the property and were paying property taxes on it. You can deduct the taxes up to the date of the sale, while the buyer pays starting from the actual date of the sale and onward.
As of December 2017 when the Republican tax bill was passed, there is now a cap on how much can be deducted, which is now $10,000. That said, you might still be able to avoid this cap if your 2018 property taxes have been prepaid and your home was assessed in 2017.
In order to be able to write off your property taxes, you will have to itemize your deductions. You can take a look at IRS Schedule A (Form 1040) to get familiar with such itemizing, or else consult with a tax professional.
The interest on your mortgage can be deducted for the portion of the year that you owned your property. The cap for sellers who secured a mortgage before December 2017 is $1 million amount. As of 2018, new homeowners who obtained their mortgage after December 2017 can deduct mortgage interest on up to $750,000 of mortgage debt when they sell.
Mortgage interest is tax deductible, so your points might be too. If you paid for points to lower your mortgage interest rate, you may be eligible for an additional deduction. When you pay off your mortgage through a sale, you can deduct the remaining value of the points until the home loan is repaid. Again, you will need to itemize your deductions in order to be able to deduct your points for the tax year that you paid them.
If you have to move because of a job transfer, you may be able to deduct moving expenses. In order to qualify for this tax deduction, however, the new home you purchase must be a minimum of 50 miles closer to your new job compared the home you sell.
In addition, the home must have been sold in 2017 in order for you to take advantage of this tax deduction. Anyone selling in 2018 will not be able to claim this deduction unless you are an active member of the armed forces who needs to move for your duties.
Every home will need some updating every so often. As a property ages, components may start to break down and become out-of-date, requiring some improvement. If you made improvements to your home to make it more marketable to prospective homebuyers, you may be able to deduct the expenses.
In order to be eligible for this tax deduction, improvements must be made within 90 days of the closing date. In addition, not all home improvement projects are tax deductible. For instance, the improvements must contribute to the increase in the value of your home and extend its useful life. You will want to speak with your real estate agent and a tax professional to find out what types of upgrades qualify for tax deductions before you take on any projects.
The Bottom Line
Homeowners and sellers certainly have a number of tax deductions that they can make in order to reduce the amount of money that needs to be paid to the tax man every year. You’d be well-advised to find out what these are and keep a detailed paper trail of all the transactions associated with your home and the actual sales transaction.
While 2018 has brought about a number of significant changes in tax deductions associated with selling a home, you can still be eligible for a number of deductions that can help you minimize your tax obligations.