In 2022 I’m willing to bet most of you spend an absurd amount of time asking yourself ‘are tax deductions when selling a home?’

Of course you don’t. After the past 2 years, you’re just trying to figure out which way is up, how to not get canceled or hoping the kids don’t call you a Boomer for not having a Tik Tok account. Frankly most of us don’t think of this until the time comes or the tax man comes calling. Fortunately for you, and if you’re reading this, there are a few things you can (and should do) to keep your hard earned equity in your pocket after the yard sign says ‘SOLD’.

Below are the handful of ways for you to save….

1. Selling costs

These deductions are allowed as long as they are directly tied to the sale of the home, and you lived in the home for at least two of the five years preceding the sale. Another caveat: The home must be a principal residence and not an investment property.

“You can deduct any costs associated with selling the home—including legal fees, escrow fees, advertising costs, and real estate agent commissions,” says Joshua Zimmelman, president of Westwood Tax and Consulting in Rockville Center, NY.

Yes, this could also include home staging fees. Whether you hired a company or bought a few items to improve the marketability of your property

Just remember that you can’t deduct these costs in the same way as, say, mortgage interest. Instead, you subtract them from the sales price of your home, which in turn positively affects your capital gains tax (more on that below).

2. Home improvements and repairs

Score again! If you renovated a few rooms to make your home more marketable (and so you could fetch a higher sales price), you can deduct those upgrade costs as well. This includes everything from painting the house or to show off projects like ensuite renovations or less sexy musts like replacing the water heater.

But there’s a catch, and it all boils down to timing.

“If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing,” says Zimmelman.

3. Property taxes

This deduction is capped at $10,000. So 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 last year up to $10,000.

Better than nothing!

4. Mortgage interest

As with property taxes, you can deduct the interest on your mortgage for the portion of the year you owned your home.

Just remember that under the 2018 tax code, new homeowners (and home sellers) can deduct the interest on up to only $750,000 of mortgage debt, though homeowners who got their mortgage before Dec. 15, 2017, can continue deducting up to the original amount up to $1 million, according to Zimmelman.

Note that the mortgage interest and property taxes are itemized deductions. This means that for it to work in your favor, all of your itemized deductions need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly doubled when it went into effect.

To make matters a tad more complicated (surely the IRS would never…. oh I’ve got jokes), those figures changed once again in 2021, increasing to $12,550 for individuals, $18,800 for heads of household, and $25,100 for married couples filing jointly.

5. Capital gains tax for sellers

The capital gains rule isn't technically a deduction (it's an exclusion), but you’re still going to like it and I’d be remiss if I didn’t include…

As a reminder, capital gains are your profits from selling your home—whatever cash is left after paying off your expenses, plus any outstanding mortgage debt. And yes, these profits are taxed as income. But here's the good news: You can exclude up to $250,000 of the capital gains from the sale if you’re single, and $500,000 if married. The only big catch is you must have lived in your home at least two of the past five years.

And remember that capitol gains are calculated on the cost basis of your home, not the original purchase price.

What's this fancy cost basis, Gentry?! Say you purchase a home for $400,000, then spend $100,000 on improvements, you would have a cost basis of $500,000. A married couple could then sell for the home for $500,000 (after living there two years) without having to pay any capital gains taxes.

In other words, the higher your cost basis, the smaller your tax bill once you sell. Just remember to keep track of every single home improvement receipt.

Finally, look for the rules of this exemption to possibly change in a future tax bill.

Lawmakers have tried to push so that homeowners would have to live in the property for five of the past eight years, instead of two out of five…. but til then!

So, before you pack the boxes (well really before you submit next years taxes… the boxes bit was just so I had a good tie in for this photo), make sure you save this little post as a reminder that just because they can, doesn’t mean you have to pay out a lot of that hard earned equity you made during your ownership of where ever it is you called home before selling. In short, if you’re in the good ol USA, these options are available to home owners and while the IRS and tax code can always seem daunting and scary, it’s more guidelines and one giant treasure map on how you can keep a few more $$ in your pocket.

After all the tax code is thousands of page, and about 98% of them are on how to save. It’s just you have to go out there and find out how! The above are a few short cuts in case you sold :)

Resource Hub

5 Must-Do Tax Deductions When Selling a Home

1. Selling costs

2. Home improvements and repairs

3. Property taxes

4. Mortgage interest

5. Capital gains tax for sellers

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