When you sell a house, what is tax-deductible? At Aniya Equity, many of our clients do ask us, “what is tax-deductible when I sell a house? Do you (the reader) know that the rules guiding tax deductions on home sales vary, depending on your property’s nature?

This article will let you know how you can keep the money you make from selling your house by filing tax deductions.

How Nature of Your Property Affects Tax Deductions When Selling Your House

As mentioned before, the nature of your house will determine your tax deductibles. Therefore, this article will enlighten you on:

  • What is Capital Gains Tax?
  • What is tax-deductible when you sell a principal residence?
  • What is tax-deductible when you sell an investment property?
  • What is tax-deductible when you sell a house with a mortgage?

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    What is Capital Gains Tax?

    When You Sell a House What is Tax Deductible

    Capital Gains Tax (CGT), in the real estate industry, is the tax you pay on the money you make from selling your real estate property after subtracting all expenses. As a home seller, you must pay tax on the profit you make from selling your home.

    Albeit, there are many of your costs you can deduct from your taxable income to reduce the tax you will on your real estate capital gains. While we shall see some of these expenses and some exceptions in this article, you can get customized help from us at Aniya Equity by contacting us.

    What is Tax Deductible When You Sell a Principal Residence

    Your principal residence is where you live, also known as a primary residence. You can get tax deductions on a few things for this type of house based on a few conditions. The following are tax deductions you can get on your principal residence:

    • Tax deductions on selling costs
    • Tax deductions on mortgage interest
    • Tax deductions on home improvement and repairs
    • Tax deductions on property taxes
    • Tax deductions on capital gains for home sellers

    This is not usually the case when you rent out some part of the property or if the property has been rented out in the past. In such a case, you’re responsible for a capital gain tax for the time spent on such property.  This is why every record, including invoices and receipts, should be well-kept from the period of renting until you decide to live on the property.

    What Expenses Are Tax-Deductible When Selling a House for Profit?

    When you’re selling a home for profit, you would be eligible for tax deductions on your capital gains tax. This is because many expenses are directly linked to the property’s sale, and they are considered tax-deductible. Some deductible closing fees include:

    • Stamp fees
    • Title fees
    • Legal fees
    • Survey fees
    • Advertising costs
    • Home sale exclusions

    What is Tax Deductible When You Sell a House with Mortgage

    If you are selling your house with a mortgage, you might have the opportunity to reduce your capital gains tax. You can do this by deducting the interest you’ve paid on your mortgage throughout the period the home was in your possession.

    Under the 2018 Tax Cuts and Jobs Act, homeowners and sellers after Dec. 15, 2017, can get mortgage interest deductions up to $750,000. Meanwhile, homeowners can deduct up to 1 million dollars in mortgage debt before the said date whenever they want to sell their houses.

    Selling a House

    Tax Deductions on Home Improvement/Repairs When Selling a House

    Every cost that adds value to the home can be included in the cost basis for profit reduction. For instance, if you spent $10,000 on home improvements, tax deductions will be considered when selling a home. If you got $40,000 as your profit, your capital gain would be reduced to $30,000 ($40000-$10000).

    Home improvements are often considered anything that extends the house’s value or increases its value. Some of them include:

    • Fencing
    • Installation of air conditioning systems
    • Adding solar panels
    • New heating system
    • Water filtration installation

    Any expenses you spend on repairing the home will also be included, but you cannot include the maintenance costs of these costs. Any maintenance or repairs cost that doesn’t add value to the house, extend its lifespan, or keep it in good condition is not usually considered tax-deductible. For instance, painting the home is often referred to as maintenance rather than improvement. Moreover, all deductible home improvement costs must be incurred within 90 days to the closing date. You cannot add any improvements that are not part of the house during the home sale period, and included improvements shouldn’t have less than a year’s life expectancy.

    What is Tax Deductible When You Sell an Investment Property

    Suppose the property you are selling is an investment property, you can get some tax deductions too. You can do this by ascertaining the cost of buying, holding, and selling property. All these are tax-deductible. Several rental properties’ deductions are available for you to claim if you have an investment property. But, to claim the deductions, such property has been either rented out or been advertised for rent.

    Here are some of the expenses you can claim if your investment property is advertised for rent or rented out:

    • Tax adviser fees
    • Repairs and maintenance to your property
    • Maintenance and management costs
    • Investment property insurance
    • Borrowing expenses and mortgage interest
    • Advertising for tenants and house management fees

    Another catch is that you can get tax exclusions on your investment property capital gains if you’ve lived there for at least two years in the past five years. Even if your house is currently for rent, you can get up to $250,000 (for singles) or up to $500,000 (for couples) in capital gains exclusion.

    Tax Deductions on Property Taxes

    You will enjoy tax deduction up to $10,000 if you’ve been faithful at paying your property taxes. However, the property tax deduction is only calculated for the last one year you owned the house.

    What Happens to Tax Deductions When You Make a Capital Loss When selling a House?

    While the usual thing is for you to make capital gains after selling your house, it doesn’t happen in some cases. For instance, you will make a capital loss when your home’s market value is lesser than the sum of the closing cost and mortgage you owed.

    If you made a capital loss from your home’s sale, this might be used to pay off the tax on other capital gains you will make in the future. This opportunity lets you reduce the tax you pay on your taxable income, thereby reducing your tax liabilities in the short term.

    Whether you own a principal residence or an investment property, filing for tax deductions must be done correctly to reduce your overall tax burden. Talking to an expert is the best way to avoid paying more than your fair share in taxes. At Aniya Equity, we buy houses fast and help our clients file all the paperwork.

    Sell Your House Fast | We Buy Houses

    For a free, no-obligation consultation call: 615-669-1610, or Fill Out This Form For Your FAIR Offer