While the real estate market is moving full steam ahead, prime homebuying season is just around the corner.
If you plan to sell this spring, or have recently done so, don’t forget to see if you qualify for a number of tax benefits and deductions. If you sold your home, here are five tax deductions that will make a life a little bit easier.
While the property tax deduction cannot exceed $10,000, home sellers can claim the deduction up until the home is sold.
So, if you sold your home last summer, for example, you are still eligible to claims during this year’s tax filing period.
Getting ready for a home sale is an investment. Any selling costs you incur are eligible for deductions.
To qualify, you must have lived in the home for two of the last five years and made the home your primary residence.
Only costs associated with the home sale are eligible for a tax deduction. Legal fees, escrow fees, advertising, commissions and real estate services are examples of eligible costs.
Taking the total sales price of the home and subtracting the costs will get the taxpayer to a deduction. This will also equate in any possible capital gains tax, which depends on a number of factors including profit and years of residency.
Note that the above costs are not deducted in the same way as mortgage interest.
As noted above, home sellers can deduct mortgage interest for the time period they lived in the home.
Home sellers can deduct mortgage interest based on their interest paid.
For single individuals, the IRS lets you exclude up to $250,000 in capital gains, which is the profit you’ll make when selling the home.
Couples can exclude twice that amount.
In order to qualify for the tax exclusion, the seller must have lived in the property for two of the past five years, at minimum.
So, if the profits of a home are $200,000, then a single taxpayer should have no expectation of paying tax on the financial gain.
Home repairs, improvements
Chances are that before your home hit the market, you made some repairs or home improvement to boost the home’s value.
If so, your investment can pay twice. In addition to adding to the property value, you can also deduct the costs for any upgrades or renovation performed on the home.
From roof repair, new paint, carpet replacement, new energy efficiency features to the installation of a new water heater, home sellers have various ways to gain eligibility for home improvement deductions. Just remember to report it within 90 days of closing on the home sale.
This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, or legal advice. Please consult a tax advisor for any advice specific to your transaction.