Believe it or not, the 2022 Tax Season is here! Many home sellers are not aware of many tax deductions that are available to them. If you’re looking into tax deductions for home sellers, you might feel confused and frustrated by how complicated they are. There’s a lot of information out there, and tax advice websites can be just as confusing as the IRS website. It’s easy to get lost in all of the tax deduction information online.
We have curated a list of 5 different types of tax deductions, you can take advantage of, if you recently sold a home.
Direct Repairs and Home Improvements
If you have renovated a couple rooms or the curb appeal in order to fetch a higher price for your home, you could get those costs as tax write offs. There are many reasons you could need a home repair or improvement. Sometimes the contract requires you to repair some things and some improvements can get you a much higher price for your home.
Once you’ve done these improvements and repairs, your home improvement costs will increase significantly. Fortunately, there’s a tax deduction for that. You can get this tax deduction by demonstrating that the changes were necessary to sell your home.
However, keep in mind that you need to file for this deduction within 90 days of the day you close the sale. Be clear with the construction company you hire about the tight schedule of these repairs. They need to be completed within 90 days.
Mortgage interest is one of the most popular home selling tax deductions. This deduction covers the interest you paid on your mortgage for the tax year you’re filing your 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.
To get the most out of your mortgage interest deduction, keep close track of your financial records and mortgage history. You can access information on the date of sale from the same year you sold your home.
It’s important to note that the mortgage interest tax deduction applies to multiple loans on a single property. This includes HELOCs and home equity loans. You can combine the interest from all of the mortgage loans for your tax deduction up to the max limit.
Until 2018, moving expenses could be covered as a deduction for home sellers. Now, however, this deduction only counts for those who are active-duty military personnel. Additionally, you can get this tax deduction if you’ve had to relocate permanently before selling your home because of a military order.
Home 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.
In other words, if you bought the home as an investment property, you aren’t eligible for the selling costs deduction. These tax deductions help homeowners who would otherwise lose too much money from the selling costs. These costs make them not want to sell their home as a result.
Some examples of home selling cost tax deductions could include: Real Estate Agent Commissions, Advertising Costs, Escrow Fees, Legal Fees, Abstract of title fees, payments to utility service install, recording fees, transfer of tases, and owners title insurance.
Property tax amounts are different all over the country. According to WalletHub, New Jersey has the highest average property tax rate at 2.47%.
You can deduct up to $10,000 per year in property tax from your overall bill. The property tax deduction is an itemized deduction, like the mortgage interest deduction mentioned above. If you’re filing as an individual, the total of your itemized deductions needs to be over $18,350.