What Can You Write Off When Selling a House?

Selling a house comes with various costs, but some may be tax-deductible. Knowing what qualifies can help reduce taxable gains and lower the amount owed to the IRS. However, not all selling-related expenses are eligible, so it’s important to understand the allowable deductions.

Real Estate Commissions

One of the largest expenses when selling a home is the commission paid to real estate agents, typically 5% to 6% of the final sale price. This fee is split between the seller’s and buyer’s agents.

Because this cost is directly tied to the sale, it can be deducted from the proceeds when calculating capital gains tax. For example, if a home sells for $400,000 with a 6% commission, the seller pays $24,000 in fees, which is deducted before determining taxable gain.

Commissions must be customary and necessary to qualify. If a seller negotiates a lower rate or uses a discount brokerage, the reduced fee remains deductible. However, separately purchased services, such as premium marketing packages, may not qualify.

Settlement Fees

Closing on a home sale involves various settlement fees, many of which can be deducted from the proceeds when determining taxable gains. These include title searches, attorney fees, and document preparation. Title search fees ensure no legal claims exist against the property, while attorney costs cover contract review and execution.

Title insurance, which protects buyers and lenders from ownership disputes, is another common expense. Sellers often pay for an owner’s policy to guarantee a clear title, making it a deductible selling cost. Recording fees, which cover official documentation of the deed transfer, also fall into this category.

Loan payoff-related fees, such as prepayment penalties, may apply if a seller pays off their mortgage early. While these charges are not deductible as selling expenses, they may be included in the overall mortgage interest deduction if applicable. Sellers should review their loan agreements to determine if these fees apply.

Points and Mortgage Interest

Certain financing-related costs can impact tax calculations. If points—also known as loan origination fees or discount points—were paid when obtaining the mortgage, any remaining unamortized amount may be deductible in the year of the sale. Points are prepaid interest that lowers the loan’s rate in exchange for an upfront payment. While typically deducted gradually over the loan’s life, the IRS allows sellers to deduct any remaining balance in full when the mortgage is paid off.

Mortgage interest is another deductible expense, but only for the portion accrued until the sale is finalized. Since interest is paid in arrears, sellers often owe a prorated amount for the period between their last mortgage payment and closing. This interest can be deducted on Schedule A if itemizing deductions. However, mortgage interest deductions are subject to IRS limits, with a cap on interest paid for loans up to $750,000 for mortgages taken out after December 15, 2017.

Capital Improvements

Upgrades made before selling can reduce taxable gains by increasing the property’s adjusted basis. The IRS defines capital improvements as permanent enhancements that add value, extend the home’s useful life, or adapt it for new uses. Unlike repairs, which restore the property to its original condition, improvements such as kitchen remodels, room additions, or energy-efficient installations qualify.

For example, if a homeowner purchased a property for $250,000 and later invested $50,000 in renovations, the adjusted basis increases to $300,000. If the home sells for $450,000, capital gains are calculated using the adjusted basis rather than the original purchase price, reducing the taxable amount. Eligible improvements must remain part of the property at the time of sale, meaning temporary modifications or maintenance expenses, such as painting or fixing leaks, do not qualify.

Transfer Taxes

Many states, counties, and municipalities impose transfer taxes when real estate changes ownership. These taxes are based on the sale price and vary by location. Some jurisdictions have a flat rate, while others use a tiered structure where higher-value properties face increased tax rates. Sellers typically bear this cost, though in some cases, buyers and sellers negotiate who pays.

For example, in California, transfer taxes are generally $1.10 per $1,000 of the sale price, meaning a $500,000 home would incur a $550 tax. In New York City, the tax is 1% on sales up to $500,000 and 1.425% on amounts exceeding that threshold. While transfer taxes are not deductible as an expense on federal tax returns, they reduce the seller’s proceeds, thereby lowering taxable gain. Keeping records of these payments is important for accurate tax reporting.

Property Tax Adjustments

Property taxes are typically paid in advance or arrears, depending on local regulations, leading to prorated adjustments at closing. If a seller has prepaid property taxes beyond the sale date, they may receive a credit from the buyer. Conversely, if taxes are owed for the period before closing, the seller must settle the outstanding amount.

While property taxes paid before the sale are deductible if itemizing deductions, any reimbursed amounts from the buyer are not. For example, if a seller prepaid $6,000 in annual property taxes but sold the home halfway through the year, they would receive a $3,000 credit at closing. This refunded portion cannot be deducted. Understanding these adjustments helps sellers avoid misreporting deductions and ensures compliance with IRS guidelines.