Huge Tax Breaks Every Home Seller Needs to Know About

Posted August 18, 2021
Huge Tax Breaks Every Home Seller Needs to Know About

Selling your home can be a complicated process, especially when it comes to taxes! But don’t let the complexity of real estate tax rules keep you from taking full advantage of the tax breaks that come with selling your home.

Before we dive into what those benefits are, you should know that we can only provide limited information in this area, and this blog shouldn’t be taken as professional tax advice. (Talk to your accountant for that!)

Instead, this article will give you a basic understanding how you can save on taxes when selling your home. And yes, those tax benefits are worth it!

Tax Deductions for Owning a Home  

Before you sell your house, ask yourself: Am I taking advantage of every tax break I can as a homeowner?

Some people prefer to take the standard deduction. In the 2021 tax year, that amounts to $25,100 for married couples filing jointly, $12,550 for people filing individually, and $18,800 for heads of households.

On the other hand, some can save even more if they itemize their deductions. If you choose to itemize, be sure to claim the following homeowner deductions:

-Mortgage interest on up to $750,000 of debt
-Home equity loan interest
-Home improvements that are medically necessary
-Mortgage insurance premiums
-Property taxes up to $10,000 (or $5,000 if married and filing separately)
-Home office if you’re self-employed

Quick note: When implementing medically necessarily home improvements, you may find you can only write off a portion of the cost if the project is permanent and adds to your home’s value.

Tax Breaks When Selling Your Home

If you’re thinking about selling your home, you’ll be happy to know there are several tax breaks that come with that decision.

For starters, you can exclude up to $250,000 of the home sale’s profit from your taxable income. Or, if you’re married and filing jointly, you can exclude up to $500,000. (Remember, your home sale’s profit is called capital gains, which is what’s left over after paying sale-related expenses and remaining mortgage debt.)

You can only claim this exclusion if the house was your primary residence for at least two out the five years leading up to the sale. You also can’t claim it on more than one home. So if you’re planning on selling an investment property, be sure to check out these timely tips to understand your options when it comes to capital gains tax.

Now, of course, there are some unique limitations and exceptions depending on your situation. Read this Turbo Tax article to learn more about the special circumstances surrounding this tax break.

If you plan on taking advantage of this nice tax break when selling your home, make sure you let your closing agent know that the sale’s profit is tax-free. Otherwise, they’ll issue you Form 1099-S: Proceeds from Real Estate Transactions, which means you’ll have to report the sale on your tax return.

Tax Deductions for Home Sellers

But saving on income taxes isn’t the only nice benefit when selling your house. There are several special tax deductions you can claim once the deal goes through.

  1. 1. Sale Costs

If those selling costs made your eyes bulge, don’t fret—you can write them off! As long as the home you’re selling is your primary residence (and not an investment property), you can deduct any costs that are directly tied to selling your home. That may include legal and escrow fees, advertising, home staging, and agent commissions, according to Realtor.com.

To deduct these costs, simply subtract them from the sale price of your home (which means you pay less in capital gains tax).

  1. 2. Home Repairs and Improvements

Painting, landscaping, roof repairs, and appliance upgrades are all great ways to increase the value of your home. The great news is, any renovations or repairs you do to sell your home at a higher price can be deducted as long as you do them within 90 days of closing.

We know, we know... that doesn’t give you a ton of flexibility in your schedule. But if you time them right, your renovations can mean big savings for you.

Ready to sell? We can help! Let’s meet and make a plan to sell your home for top dollar.