The Tax Benefit of Selling Your Home


The tax advantages of buying and owning a home are well known, but what happens when you sell? Read on to learn about the tax benefit you may accrue when you sell your house.


Rules affecting capital gains taxes

Most tax benefits available for home sellers relate to how any profit, or capital gain, you make on the sale of the house is taxed. Some or all of that gain you will shield from capital gains taxes if you meet certain criteria, which can run as high as 20 percent.

Homeowners are eligible for this great tax benefit if they have owned the house for at least two years. They should and lived in it for at least two of the last five years. Taxpayers who meet these criteria and file as individuals can exclude $250,000 of their gain from capital gains taxes. For married couples filing jointly, the exclusion is $500,000.

Calculating the home’s tax basis

To determine your capital gain on a home sale, you must first calculate your basis in the house. A home’s basis is the price you pay for the home plus the cost of certain capital expenditures invest in the property. The IRS defines eligible capital expenditures as work that materially improves the value of a home. This substantially extends the house’s life or adapts the house to another usage. The capital gain on the sale is the price at which you sold the home minus the basis.

Be aware that the IRS may not view some of the work you’ve done on your home to be a capital expenditure eligible to add to your house’s basis even where you believe it increased the value or longevity of the property. This holds true even if you undertook these projects just before selling. For example, the IRS will not allow taxpayers to increase their home’s basis by the cost of painting, repairing part of a damaged roof, cleaning the carpet, or replacing plumbing with identical materials.

Another tax benefit relates to the transactional expenses of selling your home. The IRS allows sellers to reduce their capital gain by the amount of the real estate commission you paid, any fees paid at closing, and the like.

The tax benefit of homeownership

Any interest you pay on your mortgage in the year you sell your home counts as a tax deduction for that year. The new tax law has limited the deductibility of mortgage interest; for homes you purchase after December 14, 2017, the amount of mortgage subject to this tax benefit the IRS capped at $750,000. You can also deduct property taxes you paid up in the sales year up to the date of closing the sale, subject to a $10,000 limit on state property, sales, and income taxes.

Need more info?

Looking to sell your home and you need more information on what tax benefits you can get? We at A Team Marketing can answer all your questions about it. Just give us a call at 855-66A-TEAM (855-662-8326) or fill out our contact form here.

Published by Jeff Anderson

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