Seller Tax Information

Net Proceeds and Capital Gains

There is an exclusion from federal tax of up to $500,000 capital gain when a couple sells a primary residence. The exclusion for an individual is $250,000. This exclusion may not be exercised again within two years of the last sale. The owner must have occupied the property as a primary residence for at least two years within the five years prior to the sale.

Permanent improvements to your home may be eligible for a reduction of the capital gains tax you might owe. Keep all home improvement receipts.

All property taxes on real estate that you own may be taken as a deduction on your yearly federal tax return.

On rental property, taxes are considered a business expense, NOT a personal tax deduction.

You may deduct all state and local government/school district property taxes.

All mortgage interest is deductible up to $1,000,000. Any interest on additional loans, such as a 2nd mortgage or equity loan is deductible up to $100,000.

DISCLAIMER: The above information is provided as a preliminary reference only. Some tax laws may have changed since this printing. Consult your accountant or tax attorney for specifics regarding the law.

Capital Improvements

An improvement is considered anything you do that enhances the value of your home, prolongs the life, or creates a new use for your home. The money you spent making these changes are called Capital Improvements and can be added to your original cost basis. This will help to reduce any capital gains tax you may have to pay from the sell of your home.

Tax law allows for an exemption of net profit from the sale if the home was the primary residence for at least two year of the last five years. However, it is important to keep all receipts or invoices of improvements in case laws are changed or you don’t fit the criteria of the current law.

Some of the following items are considered capital gains improvements:

  • Addition to the foundation of the building
  • Repair of foundation
  • Garage door and openers
  • Awnings
  • Insulation
  • Any built in appliance
  • Landscaping, including removal of plantation
  • Air or heating systems
  • New roofing
  • Basement refinishing
  • New siding or brick
  • Ceiling Fans
  • Decks, including patios
  • Swamp coolers
  • Driveways
  • Water heaters
  • Fencing
  • Fireplaces

Remember that when you are adding improvements that you don’t want to invest too much capital so as to not recoup your money.

Capital Improvement Blueprints

Home Repairs

Repairs are not normally considered tax deductible. Repairs are a common occurrence when owning a home. It is important to maintain the property, and to keep it updated and in good condition. This will help to protect your investment, and will make getting your home prepared for sale much easier.

Try not to put off repairs for a long extended time, this often leads to more damage down the road.

You may receive credit during the closing of sale for repairs on the home. It is much easier to use the money at this time rather than use it to help offset the closing cost.