Home Seller Tax Deductions

In case you didn’t know, tomorrow (April 18th) is the official deadline to file your taxes. Since the regular tax filing deadline (April 15th) fell on a Saturday this year and the next business day happens to be Emancipation Day in Washington DC, the IRS moved the deadline to the 18th. If you waited until the very last minute to file, you might be in luck. If you sold a Southern California home in 2022, we compiled a few home seller tax deductions to be aware of to help you maximize your return this year.

Home Seller Tax Deductions

Your Selling Expenses

It costs money to make money. That rings true with selling a Southern California home, too. Some costs shouldered by the seller include advertising fees, title fees, escrow fees, commissions, staging costs, and sale prep costs. Fortunately, you may be able to deduct some of these expenses on your income taxes. However, the home in question must have been your primary residence for at least two of the last five years in order to qualify. So, if you sold an investment property, this tax deduction does not apply.

Cost of Improvements/Repairs

Did you need to paint or update the flooring in order to appeal to today’s buyers? Were repairs necessary to make your property saleable? You may be able to write these off on your taxes as well. But they need to have been completed within 90 days of your closing date in order to be considered for a deduction. It pays to keep your receipts just in case.

Partially Paid Property Taxes & Mortgage Loan Interest

The IRS allows home sellers to write off any property taxes you paid on your Southern California home up until the closing date (up to $10,000). The same is true for any interest paid on your mortgage loan during that time as well. However, some caveats apply.

Capital Gains Exemption

While not a “deduction” per se, the capital gains exemption saves you thousands of dollars. When you sell your home for a profit, Uncle Sam considers that profit as “income”. Therefore, it is taxable. Fortunately, though, some if not all of that profit may actually be exempt from taxes. The first $250,000 of profit for single sellers and $500,000 of profit for married couples are considered exempt from taxes as of the date of this writing. So, if your and your spouse paid $300,000 for your Southern California home several years ago and sold it last year for $750,000, that $450,000 in profit goes to you free from taxes. If you are a single seller or married filing separately, you pay taxes on $200,000 of profit…not the full $450,000. Again, though, this must be your primary residence in which you lived for at least two of the last five years to qualify for the exemption. Also, this is where your home-selling expenses can reduce your capital gains and, in turn, your taxes due on them.

As always, talk these home seller tax deductions over with your tax preparer. Make sure to tell them about all of your expenses. Ask any questions that pop up in your mind, too. Good luck!

Muna Dionne, your Inland Empire specialist with Coldwell Banker Realty