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Top 5 Tax Deductions When Selling a Home

Tax Deductions

Tax Deductions

Selling your home is a big decision, but it can bring a significant return. Like all deductions, you may or may not be able to take advantage of all of them. But as with any large cash windfall, you can be sure the IRS wants to know about it. Fortunately, there are tax deductions you can claim on a home sale. However, this filing season is confusing as there’s a new tax code in force, the Tax Cuts and Jobs Act. Rest assured that those deductions still exist, but if you don’t claim them, you don’t get them. If you sold your home recently, or are planning to, here are five tax deductions you won’t want to miss.

Selling Costs

It costs money to sell a home, even if you go the FSBO route (which is not recommended if you want to maximize your profits) – legal fees, advertising costs, real estate agent commissions, staging costs, etc. Fortunately, you can still deduct all these expenses under the new law. However, these deductions do come with a few caveats. The home must have been your principal residence, and you must have lived there for at least two out of the five years preceding the sale. Also, remember that these deductions are not the same as others. You only have to subtract the sales expenses from the sales price of your home.

Home Improvements and Repairs

You can sigh in relief; the new code left this one intact. If you made any renovations or repairs to raise the market value of your home, then you can deduct those expenses. So you needn’t worry about the extra costs of making some repairs if anything comes up in the home inspection. Just remember, there is a slight catch to this tax deduction. To be able to deduct, you must complete repairs or improvements within 90 days of closing. That’s cutting it close for any major renovations, so you’ll want to plan for this accordingly.

Property Taxes

The new tax code has retained this, but there’s now a limit on how much you can deduct. You can now only deduct up to $10,000, so if you paid more, then too bad. On the other hand, if doing your taxes has opened your eyes to how much you’re paying in property taxes, then look for ways to reduce them.

Mortgage Interest

Your mortgage interest is another tax deduction you can make. However, the rules have changed slightly under the new tax code. You can only deduct the interest on up to $750,000 of mortgage debt. However, homeowners who got their mortgage before Dec. 15, 2017, can continue deducting the original $1,000,000 amount. The Tax Cuts and Jobs Act almost doubled to $12,200 for individuals, $18,350 for heads of households, and $24,400 for married couples filing jointly. If you deduct your mortgage interest and property taxes, keep in mind that these are itemized deductions. The only way to take advantage of it is if your itemized deductions exceed the new standard deduction.

Capital Gains Tax

The biggest financial gain is not a deduction but an exclusion. As with every investment you sell, any profits are considered capital gains, which can be taxed at a specific rate. The good news is that with a home sale, you can exclude up to $250,000 of the capital gains if you are single and $500,000 if married. However, you must meet a few requirements to take advantage of this. You must have lived in the home for two out of five years, and you cannot have used exclusion in the past two years. Also, married couples must file jointly. These rules might change in the future, so take advantage of them.

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