Sold my home - tax deductions?

[lzo]

Hello

I bought a house in 2012 for $155k, and sold my home end of November 2021 for $321.5k

I understand this is well within the $250k maximum, so I shouldn't be taxed on the ~$160k profit, but my question is in regards to the prep work for the house, the advertising, and the work done on the home to get it ready for sale.

Example:

- I spent $600 having a professional photographer come in and take pictures.  Another $250 for a website to list it (I sold it myself, for sale by owner)

- There were a list of things the buyers insisted on me doing before they would purchase the home - painting walls, changing fixtures, etc.  This might sound small, but it totaled several thousand dollars in the end.  Are these changes, repairs, modifications, and other contracting work tax deductible?  For labor and parts or just parts?

I'm assuming that those expenses would reduce the capital gain on the house sale, which in my case, being <$250k, is a moot point.  But just wanted to be sure.  Obviously if it's possible to get an actual deduction for some of these home improvements (which were made within 6 weeks of the sale), that would be great

Also on a slightly unrelated note, i got my 1098 from the mortgage company, and it has interest paid, but not property taxes.  I'm assuming this is because since property taxes weren't due, I didn't pay them, HOWEVER looking at the closing statement, i paid ~$5000 at closing toward property taxes.  Can I deduct that amount?  Or do the new homeowners (buyers) get to claim the full property tax for the year on the home?

Thanks so much!

[Mike9241]

they all cost of sale or add to basis. you get no tax benefit from those expenses.

with a personal residence, the only things you can normally deduct are mortgage interest and real estate taxes.

the charge on the closing statement for unpaid real estate taxes is deductible on Schedule A just like if you had paid them - you did because the money was taken out at closing. however, the schedule A deduction for taxes is capped at $10,000 ($5,00 if MFS)

by the way, should you get or have gotten a 1099-S you'll need to report the sale even though the gain is eliminated by the exclusion. if you do not report it, the IRS will assume a ZERO basis and issue you a bill for the $321K capital gain.

[Opus 17]

For taxes and other items, see this answer I posted earlier today.

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-i-sold-my-home-in-sc-in-june-...

Selling expenses that are allowable adjustments to your capital gains are listed in publication 523.

https://www.irs.gov/pub/irs-pdf/p523.pdf

In general, nothing is a separate tax deduction on sale of a personal home, it would only reduce your capital gains.  And since you are under the $250K exclusion no matter what, it really is a moot point.

However in general, changes to the house are not allowable expenses. Repairs are things you need to do to keep up your own property, and if you have to make repairs to sell the home, that is not an adjustment to the capital gains.  Other selling expenses like photographer, advertising, listing fees, are allowable adjustments.  Even staging is an allowable adjustment, provided you don't make changes to the home (the stager brings in furniture etc. then removes it).  

Improvements are adjustments to cost basis.  Improvements are items that increase the home's value and that are permanently attached to the real property (the land or the buildings attached to the land).  Repairs, on the other hand, keep the home in as-is condition and don't materially increase its value although they may make ti easier to sell.  For example, painting is a repair and is not an adjustment to the basis, but changing a built-in light fixture or plumbing fixture would generally be an improvement.

[lzo]

Hello - just wanted to respond to this. I contacted the mortgage company and they sent me a "Substitute Form 1099-S", which shows proceeds for the real estate transaction, the gross proceeds of $315k, but no mention of them filing anything, and no mention of the $155k i paid for the house.  So would I have to fill it on my taxes?

Also, where would I fill out the taxes paid (as part of the closing process).  The same place as i put the 1098 form data in?  I'm concerned that because the 1098 the mortgage company filed will not match what i fill in, that it will trigger an audit.  It's legitimate, but the 1098 doesn't capture the taxes paid - only the closing statement does

[JamesG1]

I assume that the 1099-S refers to the sale of your main home and not a second home or a rental or investment property.  The treatment is different in those cases.

If you sold your primary residence and lived in and owned the home for at least two years in the five year period before the date of sale, you can exclude up to $250,000 of gain.

If a 1099-S has been issued, you will want to report the sale on your 1040 tax return with the $315,000 as the proceeds and your cost basis as $155,000.

Follow these steps to report the sale:

• Down the left side of the screen, click on Federal.
• At the top of the screen click on Income & expenses.
• Under Your income and expenses, scroll down to Less Common Income.
• Click Start / Revisit to the right of Sale of Home.
• At the screen Sale of Your Main Home, click Yes.

You can also click on the magnifying glass in the upper right hand corner of the screen and enter ‘sale of home’.  Then click on ‘jump to sale of home’.

The software will walk you through questions to report the sale of your personal home, income and expenses.

See also this help.

Mortgage interest on form 1098 will be reported as follows:

• Down the left side of the screen, click on Federal.
• At the top of the screen click on Deductions & credits.
• Under Your tax breaks, scroll down to Your Home.  Click Show more to the right.
• Click Start / Revisit to the right of Mortgage Interest form 1098.

[lzo]

Thank you for your comment but please note my question - tax does not show on 1098. and a 1099S was not filed.

[DMarkM1]

Since you received a 1099-S so will the IRS.  Therefore you will need to report the sale on your return and indicate the exclusion. 

The closing document serves as your receipt for the taxes paid in tax year 2021.  Keep a copy of the page with your tax documents. 

You will enter the real estate taxes paid amount in the "Deductions & Credits" tab. It is an itemized deduction and part of the state and local taxes line on schedule A, which is capped at $10,000.  

1. Scroll down to "Your Home" 
2. "Show More"
3. "Start/Revisit" the "Property Taxes" topic

[Opus 17]

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@lzo wrote:

Thank you for your comment but please note my question - tax does not show on 1098. and a 1099S was not filed.

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The "substitute" part means the lender is sending you a piece of paper that is not the exact 1099-S that you can purchase from the IRS (which is a multi-part carbonless form that needs a typewriter, because the IRS computers are still stuck in the 1960s), but it contains the same information as the official 1099-S.  You should assume it was filed with the IRS electronically.  

If this was the home you lived in as your main residence, enter it in Turbotax as "Sale of my home."  You will report your adjusted cost basis and selling price, and if your gain is less than $250K, you won't pay capital gains tax, although you include the sale on a schedule D.

Report property taxes you paid based on your closing statement.  This is a fairly common situation and is not likely to trigger an actual "audit" without more indication of problems with your return.  It might trigger a letter asking for more details, in which case you reply with a letter and a copy of your closing statement showing the taxes credited to your buyer.

It sounds like property taxes are assessed in arrears in your area--meaning, for example, that you pay your tax bill in December for the previous year.  That would explain why you paid the buyer, because the buyer will have to pay a full year of taxes even though they only lived in the home 1 month.  You can deduct the taxes you owe for the period of time you owned the home, as if you paid them to the city or county, even though you actually paid them to the buyer.