If you sell your house at a profit, you may have to pay capital gains tax. You also may qualify for a tax break or two. Some of the breaks reduce the amount of taxable gain on the sale. You can claim other write-offs as itemized deductions on Schedule A.
If you're selling your primary home, you may be able to exclude $250,000 in gain from tax. For a joint return, it's $500,000. Suppose you buy your house for $200,000 and sell it for $260,000. If you qualify for the exclusion, you don't report the extra $60,000 on your taxes. To qualify, you must own the home, and have made it your primary residence for at least two of the five years before the sale. IRS Publication 523 details all the special cases and exceptions for the capital gains exclusion.
Tax and Points
If you itemize deductions, you normally can claim a write-off for your property taxes. When you sell, you can take a partial deduction even if the seller pays the tax for the year. For example, suppose you sell 90 days into the year, before you pay your property tax bill. You still can claim roughly a quarter of the property tax as a write-off.
If you paid points -- mortgage interest due in advance -- when you bought your house, you may have been deducting the points gradually, year by year. If you have any points you haven't written off when you close, you can take them the year of the sale.
These write-offs aren't available if you take the standard deduction instead.
Writing Off Improvements
Capital gains is the difference between your basis and your sale price. Your basis typically is your purchase price. However if you've put money into improving the house -- a deck, a kitchen remodel, a new bathroom floor -- you include this in your basis. A $200,000 vacation house with $10,000 of improvements has a $210,000 basis. If you sell for $300,000, that's only $90,000 in taxable gain rather than $100,000.
The costs of putting your home on the market and selling it also reduces your capital gains. The IRS lists several costs you can write off:
•Real estate agent's commission. •Advertising fees. •Legal fees. •Any points you pay for the buyer. •Home staging fees. Home stagers help make your home as attractive to buyers as possible. •Any services you use to help sell your home without an agent.
When calculating capital gains, you deduct these selling expenses from your sale price before calculating your gain on the sale.