The IRS has rules that state that repairs like as painting, improved curb appeal, damaged door repair, or simply making the house ready for sale are not allowed to be deducted from a tax return under the current tax code. Increasing the cost basis by adding capital improvements costs is, however, permitted.
A capital improvement is defined by the IRS as “anything that adds market value to a property, extends its useful life, or adapts it to new purposes.”
IRS Publication 523 provides the following examples of value-added modifications. They can be subtracted from your tax payment:
- Additions – Bedrooms, bathrooms, decks/patios/porches, and garages are some of the features that have been added.
- Lawn and Grounds: Landscaping, driveways, walkways, fences, retaining walls, and swimming pools are examples of lawn and grounds items.
- Exterior: Exterior improvements include storm windows and doors, a new roof, siding, and a satellite dish.
- Insulation:Wherever you have gaps in the insulation, you can add more. Attics, walls, floors, piping and ductwork are all good candidates for extra insulation.
- Systems: Heating systems, central air conditioning, furnace, ductwork, central humidifier, central vacuum system, wiring, security system, lawn sprinkler systems are examples of building components.
- Plumbing: Plumbing is the installation and maintenance of sewage systems, water heaters, soft-water systems, and filtration systems.
- Interior: The property’s approach to care for its residents is also called “inside maintenance.” Built-in appliances, kitchen remodeling, flooring, wall-to-wall carpeting, and fireplaces are examples of interior items.
The costs of selling your house are not tax-deductible.
What about other costs that you may deduct when selling a property? The most expensive item while selling a house is typically the real estate agent’s fee. (Unless you use a flat-fee real estate firm) which can be subtracted from your capital gains tax liabilities. The following expenses can also be deducted:
- Administrative costs: Document retention fees, office assistants, and so on are all examples of these hidden costs that go to the broker of the agent.
- Advertising costs: The advertising channels necessary to market the property are included in this category. They include: flyers, brochures, signage, open houses, and so on.
- Escrow fees:The money from the buyer goes into escrow. Escrow services charge a fee for this. This money is kept in an escrow account until the job is completed and all fees, expenses, and taxes have been paid.
- Inspection fees:Inspection fees are incurred when an inspector creates a report on the property’s shortcomings and improvements. Depending on the agreement, a seller may be required to pay for these.
- Legal fees: In certain jurisdictions, a real estate attorney is required to complete the closing.
- Title insurance: This protects lenders and purchasers in the event that the property’s title is contested.
This only applies if you’ve earned more than $250,000 as a single filer or $500,000 as a married filing jointly.
Active duty military moving expenses
You used to be able to deduct moving costs depending on the location of your new home and a new job. This has generally been phased out, with the exception of active military personnel. According to IRS publication 3, you must meet the following requirements:
- A member of the armed forces on active duty
- Military order forced you to change where you are stationed
If you meet these criteria then the following expenses can be deducted:
- Transportation of belongings via moving truck or moving company
- Storage of belongings in a storage unit
- Travel from old home to new home
- Lodging while traveling at hotels
Property tax deductions
Before president Trump signed the Republican Tax Bill, which reduced the deduction of taxes a homeowner could take advantage of to $10,000, you were able to deduct all taxes paid to local and state governments. This includes property taxes, sales taxes, and state/local income taxes.
If you have already sold your house and want to deduct part of the property taxes, it’s critical to bring in your settlement statement so that your tax professional can clearly see what you owe. On the day of sale, the buyer may deduct taxes; however, on the day of sale and after
Mortgage interest deduction
One of the primary advantages of living in a house is the federal mortgage interest deduction, which American tax payers are entitled to. The IRS permits you to deduct up to $750,000 in yearly interest payments as of now.
It’s also advised to inquire with your tax professional if you can deduct mortgage points in addition to the mortgage interest deduction. However, according to the IRS, there are a few conditions that must be met in order to deduct points.
It is possible to deduct mortgage interest if you sold your property last year. If you’re presently selling your house, you may claim the mortgage debt you paid until the day you relinquished ownership of the property. Your lender will send you a 1098 form that details how much interest you accrued during the year.
Now that you’ve learned about some of the costs you may deduct when selling a property, consider working with professional real estate brokers for your next transaction. Federated Homes Realty, Inc. can assist you with all of your requirements and help you save even more money!
