What Home Sale Expenses Are Tax-Deductible?

What home sale expenses are tax-deductible, and which ones help reduce your tax bill when you sell your home?

Most expenses related to selling your home aren’t directly tax deductible—but some can reduce your capital gains tax, and others might be deductible in specific cases. The key is knowing which costs qualify, which reduce your taxable gain, and which add to your home's basis.

Selling Expenses That Reduce Your Taxable Gain

When you sell your home, the IRS lets you subtract certain selling expenses from your sale price when calculating your capital gain. These aren't deductible in the traditional sense—but they do reduce your gain, which lowers potential tax owed.

Everyday deductible selling expenses include:

• Real estate commissions

• Escrow and legal fees

• Title search and document preparation

• Advertising costs for marketing the property

• Transfer or stamp taxes (if paid by the seller)

Example: If you sell your home for $750,000 and spend $45,000 on commissions and another $10,000 in closing costs, you can subtract those from your sale price, reducing your taxable gain to $695,000.

Capital Improvements That Add to Your Basis

Your home's "basis" is what you paid for it—plus the cost of significant improvements. Increasing your basis reduces your taxable gain. These expenses are not tax-deductible in the year you spend them, but they help reduce taxes when you sell.

Examples of qualifying improvements:

• Kitchen and bathroom remodels

• Roof replacements

• Adding a new room or garage

• Upgrading HVAC, plumbing, or electrical systems

Non-qualifying (nondeductible) repairs include:

• Fixing a leaky faucet

• Painting a room

• Replacing a broken window

So, if you bought your home for $500,000 and spent $50,000 on capital improvements, your new adjusted basis is $550,000. This helps reduce your capital gain when you sell.

What About Closing Costs?

Closing costs are generally not tax-deductible—but they can affect your taxable gain or be deductible in some instances:

• Buyer-paid closing costs (like mortgage points) may be deductible on your income tax return if itemized.

• Seller-paid closing costs (like title fees or transfer taxes) aren’t deductible—but they reduce your taxable gain as selling expenses.

Always consult your tax advisor to classify each fee correctly.

Personal Property and Mortgage Debt: Limited Deductions

Some home sale-related situations may have tax consequences:

• Selling personal property (e.g., appliances, furniture) is not deductible—it’s taxed as ordinary income.

• Canceled or forgiven mortgage debt might be taxable as income unless excluded under IRS relief programs.

These situations typically don’t offer deductions and may even increase your tax liability. Documentation is key.

Capital Gains Tax Exclusion: A Major Advantage

If you’re selling your primary residence, you may not owe capital gains tax at all—thanks to the IRS’s Section 121 exclusion:

• $250,000 exclusion for single filers

• $500,000 exclusion for married couples filing jointly

To qualify, you must have:

• Owned and lived in the home for two of the past five years

• Not used the exclusion on another home in the past two years

If your gain falls below the exclusion amount, you won’t need deductions—because you won’t owe any tax.

The Bottom Line for Sellers

Most home sale expenses aren’t tax-deductible in the traditional sense. However, many reduce your capital gain or adjust your home’s basis, which ultimately lowers what you might owe in taxes.

This is where working with an experienced real estate agent—and a great tax advisor—can make a significant difference.

If you're planning to sell and want clarity on your net proceeds, let's connect.

Let’s Talk Strategy Before You Sell

As a seasoned real estate agent serving West Chester and Liberty Township, I help homeowners like you sell strategically—with a plan that considers market value, negotiation tactics, and tax-smart timing.

Schedule a quick consultation today and get clarity on your next move. We'll make sure your home sale is profitable and compliant.

Mike Weghorst

Real Estate Agent

Coldwell Banker Realty