5
Tax Deductions Sellers Won’t Want to Miss
By Laura
Agadoni | December 5, 2014
Learn which tax
benefits you can take advantage of when selling your home.
If you’re like me, you
think the IRS wants as much information about your financial life as possible.
And that’s typically true — except when you sell a home and make a profit of less than $250,000 (or
less than $500,000 when you file a joint return with your spouse).
If you meet those
qualifications, and if you have lived in that home for two of the five years
before you sell, the IRS doesn’t want to hear about your home sale because the profit you make is
excluded from being taxed under U.S. Code 121. Tell
your mom about the sale instead, because the IRS isn’t listening.
And
now for the deductions …
As if that wasn’t
enough, here’s some more good news you should know about: The IRS grants some tax
deductions for home sellers. Getting the deductions requires that you itemize
your taxes, admittedly a tedious job, but one that is probably worth your
while. Here are five tax deductions you should take for 2014.
1.
Selling costs
If you don’t qualify for
the 121 exclusion, you will owe taxes on any profit, so make sure you deduct
all your selling costs from your gain.
- Your real estate agent’s
commission
- Legal fees
- Title insurance
- Inspection fees
- Advertising costs
- Escrow fees
- Legal fees
And there’s another
consideration. Vanessa Borges, an enrolled agent and tax preparation supervisor
with the Tax Defense Network, notes that “you might qualify for a partial
exclusion if you sell your home due to circumstances involving divorce, change
in employment, change in health, or other unforeseen circumstances.”
2.
Moving deduction
If you have to sell
your house because you’re relocating for work, you might be able to deduct some
of your moving expenses, says Chantay Bridges, a licensed
senior real estate agent in Los Angeles. Deductions could include
transportation costs, travel to the new place, storage costs, and lodging
costs.
3.
Property tax deduction
“You can deduct your
property taxes for the portion of the year that you owned the home,” says Dr.
Kimberly R. Goodwin, associate professor of finance and the Parham Bridges
Chair of Real Estate at the University of Southern Mississippi.
Deduct the taxes “up
to, but not including the date of the sale,” according to the IRS. The buyer pays
beginning from the sale date.
4.
Home improvements
It’s a sad fact that
you sometimes need to improve your home — not for your own benefit and
enjoyment — but for the home’s future owners. If you make home improvements
that help sell your home, and if they are made within 90 days of the closing,
they are considered selling costs, which are deductible, according to Dr.
Goodwin.
5.
Points
If you paid points to
lower your interest rate when you refinanced your home, you might qualify for
an additional deduction, says Bridges. Because you can deduct a proportional
share of the points until the loan is paid, when you pay off the loan through a
sale, you can “deduct the remaining value of those points,” says Dr. Goodwin.
What
can’t you deduct?
Tax deductions are
fickle. They “can vary from state to state and from year to year,” says
Bridges, who suggests that home sellers check with a tax expert to confirm the
tax deductions are still available at the time of the sale.
For example,
homeowners who qualified used to be able to deduct mortgage insurance premiums, also called
PMI, but they won’t be able to do that for the 2014 tax year.
Taxes
can be confusing. (Who knew?)
There is also some
confusion regarding deductions. Sean P. Storck, a certified financial planner
and enrolled agent with Rawdin-Baron Financial in California, explains that
many sellers think they can deduct, but can’t. Storck says the biggest
misconception concerns repairs and that “generally speaking, anything done in
the course of maintaining property for normal use is nondeductible.”
The same goes for what
Storck calls “phantom labor,” in which “you do the work of constructing your
home on your own.” Although you may have worked your tail off, you still cannot
deduct your sweat equity come selling time.
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