For sellers you are not able to deduct most selling expenses directly from your income, the expense instead reduce any capital gains you might owe on the profit from the sale. There is a capital gains exclusion if the property sold was your primary residence. The exclusion is up to $250,000 when filing as Single and $500,000 when filing as married filing a joint return. In order to qualify for the exclusion you must have lived in the home for 2 of the last 5 years before the sale.
Costs that reduce your capital gains:
- Selling expenses: Fees paid to sell the property, such as real estate agent commissions, legal fees, and title insurance.
- Home improvements: Costs for major improvements that add to the home's value can be added to your cost basis. For instance, putting in a new roof or adding a deck would qualify, but general repairs do not.
- Property taxes: You can deduct the portion of the property taxes you paid for the part of the year you owned the home. For tax year 2025, the combined state and local tax (SALT) deduction, which includes property taxes, is capped at $40,000 ($20,000 for married filing separately), though this limit may be lower based on income.
- Mortgage interest: You can deduct the mortgage interest paid up to the date of the sale.
For buyers the only deductible closing costs when purchasing a personal residence are property taxes and mortgage interest which are itemized on your tax return. Most other fees are not deductible but can be added to the cost basis to lower your capital gains if you sell the property in the future.
Potentially deductible costs for buyers:
- Mortgage interest: The interest you pay on your mortgage is deductible, up to certain limits. For loans originating after December 15, 2017, the limit is $750,000 in mortgage debt ($375,000 if married filing separately).
- "Points" paid to secure the mortgage: Mortgage points paid to lower your interest rate are a form of prepaid interest and are generally deductible, though certain conditions apply. In some cases, you may have to deduct the cost over the life of the loan.
- Property taxes: The portion of the property taxes you pay at closing for the period you own the home can be deducted. This is also subject to the overall SALT deduction limits.
Non-deductible costs (can be added to cost basis):
- Appraisal fees
- Inspection costs
- Attorney fees
- Recording fees
- Title insurance
Helpful Links:
I sold my home. What can I deduct?
Publication 523 (2024), Selling Your Home
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