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Ahh tax time. The dreaded time of year where you find out how much tax you owe (or if you're lucky, how much you get back). 2018's new tax code (Tax Cuts and Jobs Act) changed some rules for homeowners, but if you sold your home last year (or are planning to in the future), the tax deductions when you file can still amount to sizable savings. Here are 5 "sweet" tax deductions you can take:
1. Selling Costs
If you lived in your home for at least 2 out of the 5 years preceding the sale of your home and the home was a principal residence (not a rental/investment), you can deduct any costs associated with selling the home; like legal fees, escrow fees, advertising costs, and even the commissions you paid to your real estate agent. You can't deduct these costs in the same way as your mortgage interest but you can subtract them from the sales price of your home to positively affect your capital gains tax.
2. Home Improvements/Repairs
Did you renovate a few rooms to make your home more marketable within 90 days of closing? You can deduct those upgrade costs as well. This includes painting the house, installing new flooring, repairing the roof, or installing a new water heater, for example.
3. Property Taxes
If you were dutifully paying your property taxes up to the point when you sold your home, you can deduct the amount you paid in property taxes up to $10,000.
4. Mortgage Interest
Just like with property taxes, you can deduct interest on your mortgage for the portion of the year you owned your home. You can deduct the interest on up to $750,000 of mortgage debt. *Note that mortgage interest & property taxes are itemized deductions. Which means for it work in your favor, all of your itemized deductions need to be greater than the new standard deduction ($12,200 for individuals, $18,350 for head of household, and $24,400 for married couples filing jointly).
5. Capital Gains Tax (for sellers)
The capital gains rule isn't technically a deduction but it's an exclusion & you're still going to like it! (Capital gains are your profits from selling your home- whatever cash is left after paying off your expenses, and any outstanding mortgage debt) You can exclude up to $250,000 of the capital gains from the sale if you're single & $500,000 if you're married.
As always, it's best to double check with your tax professional to ensure you are getting all of the deductions you possibly can. Happy Filing!
Source: Heidenry, M. (2020, February 22). 5 Sweet Tax Deductions When Selling a Home: Did You Take Them All? Retrieved from https://www.realtor.com/advice/sell/tax-deductions-when-selling-a-home/
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