Home sellers have plenty to do. They need to have their property listed, advertised, and marketed. Many sellers are usually preparing their house for sale while they’re also researching other properties and neighborhoods that they’d like to live in.
Taxes are one thing that many homeowners have in mind. There are different rules for reporting income and taxes from the sale of a house. Sellers may be able to claim certain deductions or exclusions from the sale. They could result in a lower tax bill or a larger refund.
Selling a home in Utah isn’t always easy. You have to pay attention to current market trends and economic conditions. The sale price that you come up with must be reasonable based on those conditions. It can also require some patience and planning. You should still be able to sell your home in most instances in a matter of weeks or months at the most.
Here are a few things that are tax deductible when selling a home:
1. Capital gains.
Capital gains is the biggest deduction that home sellers can make. Capital gains are the money made from selling your house. This is your net proceeds after any remaining mortgage balance, sellers closing costs and other expenses have been paid. Single people can claim up to $250,000 from the sale, and married couples filing a joint tax return can claim up to $500,000.
This exclusion is determined by looking at the cost basis for the house. The cost basis is calculated by taking the amount that you paid for the home and adding the costs for any repairs or improvements that were made. For example, a house that was purchased for $225,000 and had repairs or renovations of $50,000 would have a cost basis of $275,000.
2. Mortgage interest.
Homeowners can deduct part of the interest on their home loans. Home sellers and new homeowners can deduct mortgage loan interest on up to $750,000 of mortgage debt if their mortgage was acquired after December 15, 2017. People with home loans before that date can deduct mortgage loan interest on up to $1 million of mortgage debt.
You’ll have to include your mortgage interest as an itemized deduction. All of your itemized deductions have to be more than the standard deduction for you to receive any money back on your taxes.
Changes to the tax laws in 2020 now allow up to $12,400 of mortgage interest to be claimed by individuals, $18,650 for people filing their return as head of household and $24,800 for married couples who are filing a joint tax return.
3. Property taxes.
Home sellers can also deduct a portion of their property taxes. The maximum amount that can be deducted is $10,000. This will need to be included as an itemized deduction, just like your mortgage interest.
If your total itemized deductions are less than the standard deduction that’s allowed, you’re probably better off just claiming the standard deduction. That way, you know what your deduction will be and won’t have to spend the time and effort itemizing everything line by line.
4. Selling costs that were incurred.
You may be able to claim certain expenses that were involved in selling your home on your tax return. Realtor commissions, marketing and advertising fees, escrow fees, home staging costs and escrow fees could be deducted.
These expenses would be subtracted from your house’s sale price. Selling costs may impact your capital gains on the sale transaction.
Not all expenses can be claimed as selling costs. For example, you cannot claim any rent or utility fees that you charged while your house was up for sale.
Some mortgage loan fees. Most moving expenses and any fire insurance policy premiums can’t be included as selling costs when itemizing your tax deductions.
To qualify for these exemptions, you must have owned the house that was sold for at least five years. That property must also have been your primary residence for at least two of those years.
5. Renovation and repair expenses.
Some repairs, upgrades, and renovations that were made to the house before it was sold can be deducted from your taxes. Repairing windows, doors, the roof and other items could be subtracted., as well as installing a new heating or cooling system, adding a deck or adding solar panels to the exterior of your house.
Any eligible changes must have been made within 90 days from the sale closing. Repairs or renovations made before that time cannot be deducted from your tax return. Make sure to keep your receipts from any renovation or repair work that was done.
6. Moving expenses for people in the military who are on active duty.
As of 2018, most home sellers can no longer claim moving expenses as tax deductions. However, military personnel on active duty can still claim this deduction. This exemption is also available to military members if a military order required them to relocate permanently before their house was sold.
Form 3903 will be used for this kind of deduction. Travel from the house that was sold to the new house that was rented or purchased can be deducted. Transport and lodging costs may also be included.
If you’re confused or concerned about what is or isn’t tax-deductible after your house was sold, feel free to consult your tax preparer or tax attorney. Ask them any questions that you may have. They should have years of experience or knowledge of real estate transactions to be able to address your concerns accordingly.
Taxes can be frustrating, but they’re something that all adults have to deal with. Knowing the exclusions and deductions can make preparing your taxes much easier. They may also allow you to receive a nice refund months after your home was sold.
You can put that money toward the purchase of a new house or other big-ticket item, or just save it for a rainy day. Whatever you decide, pay attention to your costs carefully and ensure that all bills and taxes are paid on time. Then you can look forward to the next phase of your busy life.
Contact Jackie Ruden Realty Team
Give us a call today at (435) 272-7710 to set up a time to discuss your current and future real estate goals in regards to buying a home or buying a property in trust. We look forward to working with you to make your goals a reality.