For the purpose of reducing capital gains on sale of a second home, most closing costs are considered selling expenses that can be used to reduce the gain, correct?
Much of the information and publications online seem to addresses the topic of closing costs primarily from the purchase/buyer perspective rather than seller perspective.
I believe typical seller's closing costs can be treated as selling expenses and reduce a capital gain, for example.
- Commissions
- Typical filing fees
- Owner's Title Insurance
- Transfer / Doc stamps
The total would typically end up under Code 'E' adjustment on 8949, essentially reducing the gain.
SE
Yes, you can deduct those costs from the sale proceeds to arrive at your capital gain for tax purposes.
Thanks for the timely response.
Not sure if this follow-up question warrants a separate post, but the one item I simply cannot find any confirmation as to being an includable closing cost is an HOA Estoppel fee. I've seen some opposing opinions online, even on this forum. It seem logical to me that if the Estoppel is a requirement for closing then the fee should be includable.
Anyone?
SE
If the HOA Estoppel certificate fee was required for the sale to complete and you paid it, then you can add it to your selling expenses.
My interpretation of a one time estoppel fee required by lender, functions in a similar fashion as title assurance. That is, it is to provide transparency that there are no unknown liens or fees assessed by the HOA to an unsuspecting buyer.
Normal HOA fees for a personal residence are not deductible or added to basis. But in this scenario, the certificate functions unlike typical HOA fees and that is how I'm basing my interpretation - its function.
There is no precedent for deducting HOA estoppel fees. If in doubt, then the more conservative opinion should prevail.