How to Reduce Capital Gains Tax When Selling Your Home

When it comes to selling your home, you may be able to reduce your taxable capital gain by deducting the cost of certain expenses. These include realtor commissions, title insurance, legal fees, advertising costs, administrative costs, custody fees, and inspection fees. It's important to note the difference between home repairs and capital improvements. Home repairs are maintenance tasks that keep your home in good condition, while capital improvements are projects that add value to your home.

For tax purposes, a home improvement is any expense that significantly increases the value of your home, significantly extends its useful life, or adapts it to new uses. If you hire a home prep manager to do or organize such extensive work, make sure they detail the bill so that it separately shows the expenses for improvements and services (such as renting furniture) that qualify as advertising expenses. Expenses you incur that physically affect the home are not deductible from sales proceeds, even if they help make your home more sellable. The cost of tax-deductible home improvements may also help lower your capital gains taxes when selling your home.

People with substantial capital in their homes should be aware of the potential for capital gains taxes when selling their homes.

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