House Sale Exemption and moving deductions

[Amanda1229]

1) what all can be included as house costs to reduce my house sale gains that are above the exemption of 250K? 

2) are there any moving expenses that can be deducted?

3) my boyfriend and I both sold our own separate houses in 2021 and bought a new house together. If we got married before the end of the year, would we need to file married filing separately in order to each get our own 250K exemption on our house sales? 

4) are there deductions for any home repair or improvement projects we do on our house we just bought this year?

[RossP88]

Hi!

1. Any major improvements to the property. For instance, if you did any major remodeling of any part of your home, that could be included in the cost basis to reduce gains.

2. Unless you are active duty military, moving expenses are largely non-deductible since the passage of the Tax Cut Jobs Act of 2017.

3.  In order to claim two 250,000 dollar exclusions you would need to file separately. Alternatively, you could claim the full 500,000 exclusion and rent/hold the other property for 2 years while the waiting period resets and then sell the second property to exclude 500,000 dollars more in potential capital gains. 

[Amanda1229]

For item 1, so replacing a water heater or installing a concrete patio addition would not be considered major? or what constitutes as major? 

For item 4, we built a new fence for the yard, can we consider that a major improvement given the cost was over 5K?

[lconley2]

Hi Amanda! 

Improvements include any work done that adds to the value of your home, increases its useful life, or adapts it to new uses. These include room additions, new bathrooms, decks, fencing, landscaping, wiring upgrades, walkways, driveway, kitchen upgrades, plumbing upgrades, and new roofs. I hope that helps! Let us know if you have further questions.

Thanks for trusting Turbo Tax with your tax questions! 

LloydC, Enrolled Agent

[davidswc]

ON #2, you say moving expenses are "largely" non-deductible if non-military. What does that mean exactly? That infers some things are if you're not military.

[erinm0717 · Accepted solution]

Hi Amanda!  Happy to help with your questions today!  

1) This link has some great information on the expenses you can claim to decrease the capital gain on your home: https://www.irs.gov/publications/p523

You will want to scroll down to the basis adjustments section. Here is a list of costs that can be included:

• 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

These are the fees that cannot be included: 

• 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.

2) Here is a great link which explains if you can deduction your moving expenses: https://ttlc.intuit.com/community/credits-and-deductions/help/can-i-deduct-my-moving-expenses/00/261...

"If you’re active-duty military and were ordered to move as the result of a PCS (permanent change of station), you can deduct your out-of-pocket moving expenses to your new post, including travel and lodging (but not meals). You cannot deduct moving expenses for which you were reimbursed, nor can you deduct moving expenses that were paid for by the government.

For everybody else, the moving expense deduction has been suspended for tax years 2018 through 2025 as a result of the Tax Cuts and Jobs Act that was signed into law in late December of 2017."

3) You can only claim one principal residence if you file together.  If you file married separately, you can each qualify for the $250K requirement if you meet the qualification rules.  Here is a great link which explains the qualifications: https://www.journalofaccountancy.com/issues/2002/oct/thehomesalegainexclusion.html

4) If your home is used for personal reasons, you cannot deduct improvements and repairs. I would keep track of the major improvements as you can use these to calculate your cost basis if you sell your home in the future.

Hope that helps!