Home sellers who have just pulled down the “For Sale” sign from their house and have made a successful sale may think the hard work is over.
It is, for the most part. But a home sale may leave home sellers with some tax questions for a tax professional. Below are some questions that home sellers should ask (with some possible answers), with the caveats that everyone’s tax situation can differ and tax laws change, so seek professional advice.
Deductions to claim from my home sale?
Don’t expect to be able to deduct expenses from fixing up a house to lure buyers. However, significant capital improvements that add to your cost basis for purposes of sale can be deducted.
Can real estate agent commission be written off?
No, not for a personal residence. But it may be added to your basis for the sale as adjustments your tax professional says are OK. Such costs can be subtracted from whatever gain you made on the house.
Do I need a real estate lawyer?
No, legal services can’t be deducted on a tax return. However, if you sold a business or rental property, they can.
Can I write off my tax lawyer and accountant?
Yes. Services for tax advice and preparation can generally be deducted from your taxes.
Deduct mortgage interest if I don’t own the house at tax time?
Yes. Your mortgage can’t be for more than $1 million and is your main or second home. Check form 1089 that is issued by your mortgage provider at the end of the year to see how much interest you’ve paid.
Do I pay taxes on the sales proceeds?
Yes. However, you can avoid paying tax on up to $250,000 of gain, or $500,000for married filing jointly, if you’ve owned and lived in the property for two of the last five years.
Can I avoid paying tax on the gain by putting the proceeds toward a new house?
No. Before 1997 the proceeds from the sale of a home to buy another house could be excluded. Now, the IRS doesn’t care what you do with the proceeds. Ask your tax pro for advice.
What am I missing?
This is the final question you should ask your tax or real estate law professional. Are you missing anything having to do with your taxes this year?
Your taxes revolve around your bigger financial picture. If you have any questions, ask. If you need something explained, ask for help. You’ve hired these professionals to work for you, so let them do it and give them time to ask you any questions.
Hey Aaron,
While the listing and marketing materials include lots of details about a house (the number of bedrooms and baths, and the square footage, for example) – and the showing lets you see it firsthand – talking to the seller can help you learn exactly what you could be getting into.
Thank You!