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William Perez

Are Expenses When Selling a House Tax-Deductible? - Questions from Readers

By June 23, 2005

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"Dear Tax Guide, I have one more question about selling my house. Does any touch up work that was done just prior to listing the house come into play? I think painting would generally not count but I read somewhere about an exception being if it was for the purpose of selling it. I'm not talking about a few months before listing but rather a few days. The commision for the listing agent is 6%. There is also a state tax that we have to pay on the sale. Are these two subtracted from the gain?"

Dear Reader,

I have updated my article on capital gains on the sale of your main home to include a formula for calculating your gain.

Basically, you can include all sorts of selling expenses in the cost basis of the house, thereby increasing your adjusted cost basis and decreasing your capital gain. What counts as a selling expense? Any reasonable and customary expenses to get your house sold. This would include all those fees you pay at closing, plus any improvements that prolong the useful life of the house. In Publication 523, the IRS explains that the following improvements will increase your cost basis in the house:

  • Additions and other improvements that have a useful life of more than 1 year,

     

  • Special assessments for local improvements, and
  • Amounts you spent after a casualty to restore damaged property.

For a complete list of adjustments to cost basis, see the Adjusted Basis section of Pub 523.

Finally, remember that a married couple can exclude up to $500,000 of gain as long as at least one spouse has lived in the house for at least two years in the past five years. If you have co-owners (for example two unmarried co-owners), each owner can take his or her exclusion of $250,000.

Any gain over this exlusion amount will be taxed as a long-term capital gain (assuming that you've owned the house for more than a year). The tax rate on long-term capital gains is either 5% or 15%, depending on what income tax bracket you are in. I'm guessing that your long-term capital gains tax rate will be 15%. So set aside 15% of your taxable gain for the IRS. Check on capital gains tax rates in your state. You may need to set aside that money as well.

As far as the refrigerator and other appliances are concerned, those are considered separate property from the house. Very likely you are selling these items for less than what you paid, and this loss is not tax deductible. If the appliances are fairly new, you should be able to dig up a receipt for their purchase price. If the appliances are older, they may not have much value, and the new owners might even want to replace them. You can get an idea of the fair market values for these appliances by browsing through local classified advertisements for similar appliances. If you are selling the appliances with the house, make sure that is specified in the sales contract to prevent any misunderstandings between you and the buyer.

Any state income taxes you pay on the sale of the house will not reduce your capital gain. Instead, include this amount along with other state income taxes you paid as an itemized deduction on Schedule A.

Best wishes,

William

Comments
December 4, 2006 at 3:50 pm
(1) Stephanie says:

I need clarification on two items:

1. You state that one of the two spouses must have lived in the house for 2 years for the $500k exclusion. Do you have to be married for 2 years or can you get married (after living in the house over 2 years) and claim the $500k?

2. You mention having receipts for new appliances when you sell a home but you never state flatly that new appliances bought specifically to remodel a kitchen, done to sell a home, is a deduction against the capital gain. Can I deduct new appliances within 6 months of the sale of a home?

Thanks!

February 17, 2010 at 11:40 am
(2) Jayne says:

Is seller assist (cash at closing) deductable. It’s not points, just assistance. Also, you mentioned state taxes paid at closing is an itemized deduction. When I sold my home, on the HUD sheet I paid county and school taxes. Are the deductable as well?

February 7, 2012 at 6:08 pm
(3) Rod says:

I sold my house in Feb of 2011.
I paid part of the closing cost for the buyer.
How much of it can I deduct?
Thanks

June 6, 2012 at 11:48 am
(4) Gala says:

Hello,
My father and I are the two owners of the one house. My father lives in the house, i moved 6 years ago. The house is for sale. If it is sold with $100,000 gain, can my father use his exclusion for all gain, so I don’t have to pay any taxes? He bought this house, and I was added later to the deed for refinancing purposes.
Thanks.

December 14, 2013 at 11:18 pm
(5) Wherestha Answer says:

Maybe you could answer the original question, about touch-up work done just to sell the house.

March 8, 2014 at 11:48 am
(6) Richard B says:

Yes, please answer the original question about painting and other fix up expenses to sell the house

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