Deductions & credits

No you do not have to use the gross proceeds- you should include any settlement fees as selling expenses to help reduce the gain on the sale. 

Some settlement fees and closing costs you can include in your basis are:

• Abstract fees (abstract of title fees),

• Charges for installing utility services,

• Legal fees (including fees for the title search and preparing the sales contract and deed),

• Recording fees,

• Survey fees,

• Transfer or stamp taxes, and

• Owner's title insurance.

Some settlement fees and closing costs you can’t include in your basis are:

• Fire insurance premiums,

• Rent for occupancy of the house before closing,

• Charges for utilities or other services related to occupancy of the house before closing,

• Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994),

• Charges connected with getting a mortgage loan, such as:

  1. Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs),

  2. Loan assumption fees,

  3. Cost of a credit report,

  4. Fee for an appraisal required by a lender, and

• Fees for refinancing a mortgage.

See IRS Publication 523: Selling Your Home for a list of eligible settlement fees to use.  

@jillianksandoval