If you are planning to sell your home in the next few months you need to plan ahead. There are a number of tax benefits and home upgrades that can increase your home value and increase the return on investment on these projects.
Home Upgrade Tax Benefits
Usually, before selling your home you make upgrades to increase the value of your home. Painting the exterior of your house, to minor upgrades in the kitchen. Keep tabs of the receipts of these projects.
The upgrades you made are tax-deductible and can lower your tax liabilities come tax time.
Important note: Timing is important, to be qualified for the deductions, upgrades or renovations should be within 90 days of the closing.
Selling costs tax deduction
Tax breaks are rare, but this one that might be beneficial when you sell your home.
Like any other IRS deductions, certain rules need to be followed to qualify for this deduction.
If you gained more profit than the specific limits stated above, that profit may be taxable.
Some capital gains are exempted and its discussed below.
There are additional items that you can deduct as far as cost in selling your house is concerned:
- Legal fees
- The real estate agent commission
- Marketing costs
- Home staging fees
- Escrow costs
Justifying these expenses is crucial in claiming this deduction. It’s also crucial because these costs could lower your capital gains tax.
Keep all receipts associated with the project so this will be your reference in the future when it’s time to file your taxes and when the IRS asks for proof.
Moving expenses deduction
Moving expenses are straight forward tax benefits to you. Keep receipts and use a credit card to track moving expenses.
Qualifying Expenses are:
- Gas expenses for the move
- Rental Trucks
- Short term storage
- Boxes
- Lodging expenses on the way to your new home
- Parking fees
- Tolls
Remember, expenses should be reasonable and associated with your move.
Keep those receipts and use a dedicated credit card to easily track those expenses.
The IRS form used for deducting these expenses is IRS Form 3903.
- Mortgage Interest tax deduction
Mortgage Interest Tax Deduction
Mortgage interest tax deduction allows homeowners to deduct the interest they pay. You need to itemize your tax return to claim the credit.
In the first few years of your mortgage, a bulk of the payments towards your home loan goes to paying the interest than the principal balance.
If you bought a new home, you can deduct up to $750,000 of primary home loan interest.
This is a great tax write-off opportunity since most of our homes are below $750,000.
In summary, get all those mortgage statements together and get the maximum refund and save on your taxes.
Capital Gains Tax on your house
Capital gains on a property are the difference in your purchase price for the house and the amount you sold for.
Example: You bought a house for $500,000 and the property sold for $750,000. Then your capital gains would be $250,000.
Now in the state of California, you can be exempted from capital gains. For a couple of reasons:
- You have owned and lived in the home for two years out of five years before the sale of the home.
- It only applies to your primary residence and not for investment.
- If your single, the first $250,000 of profit on the sale of your home is tax-free.
- For married individuals, the first $500,000 of profit on the sale of your home is tax-free.
Get prepared and reap the tax benefits
Keep a separate folder to organize all the receipts of the project. Even though some of these are done years ago and that means that you need to keep. If you live in the house for a number of years, make sure to keep those receipts as well.
Keeping track of all the expenses can decrease or eliminate tax liabilities when you sell.
Consult your tax professional to assist you with this process. This deduction is not that common so filing the correct forms is crucial.
