Did you know that if you sell your home and make a profit of less than $250,000 (or less than $500,000 when you file a joint return with your spouse), and have lived in that house for 2-5 years the IRS doesn’t want to hear about. This is because the profit you make is excluded from being taxed under U.S. Code Section 121.
The IRS grants some other tax deductions for home sellers. Receiving the deductions requires that you itemize your taxes, which means your taxes won’t be easy peezy, but extremely worth your while. Here are five tax deductions you should take this year.
1. Selling costs
If you don’t qualify for the 121 exclusion, you will owe taxes on any profit, so make sure you deduct all your selling costs from your gain. You can deduct the following, according to Nolo:
- Your real estate agent’s commission
- Legal fees
- Title insurance
- Inspection fees
- Advertising costs
- Escrow fees
- Legal fees
Keep in mind, you might qualify for a partial exclusion if you sell your home due to circumstances involving divorce, change in employment, change in health, or other unforeseen circumstances.
2. Moving deduction
If you move because you got a new job, you may be able to deduct some of your moving costs. To qualify for these deductions you must meet several IRS requirements, including that your new job must be at least 50 miles farther from your old home than your old job was. Moving cost deductions can include travel or transportation costs, expenses for lodging, and fees for storing your household goods.
3. Property Taxes
Often referred to as “real estate taxes,” property taxes are fully deductible from your income. If you have an impound or escrow account, you can’t deduct escrow money held for property taxes until the money is actually used to pay your property taxes. And a city or state property tax refund reduces your federal deduction by a like amount.
4. Improvements Made to Your Home
If you make home improvements that help sell your home (like replacing a leaking roof or defunct HVAC system), and if they are made within 90 days of the closing, they are considered selling costs, which are deductible.
5. Points
Your mortgage lender will charge you a variety of fees, one of which is called “points.” One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage.
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