Reduce capital gains tax on a 2nd home sale

[Lkuenster]

Can I use the closing costs I paid when I purchased the 2nd home  to offset the capital gains tax when I sold it 2 years later.   I know I can use the cost to sell tue home, but can I use the closing cost amount when I first purchased it to reduce my capital gains 

[MonikaK1]

You can add any qualified nonrecurring closing costs from the purchase to your basis in the home. Your adjusted basis in your personal residence is generally your cost in acquiring your home (the original purchase price plus any nonrecurring closing costs such as escrow fees) plus the cost of any capital improvements you made, less casualty loss amounts and other decreases. The amount of any original or refinanced mortgage is not part of the calculation. For more information on basis and adjusted basis, refer to Publication 523, Selling Your Home. 

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.

Settlement costs don’t include amounts placed in escrow for the future payment of items such as taxes and insurance.

If you don't have your original escrow closing documents, you could contact your lender or real estate professional. You could also check with your local tax assessor's office to find any deeds that were recorded regarding the original purchase.

If you sold your main home during the current tax year, TurboTax can determine if you need to report the sale on your tax return. Generally, profits of up to $250,000 (up to $500,000 on a joint tax return) don't need to be reported to the IRS. TurboTax can figure this out for you.

To enter the sale of a personal residence in TurboTax Online:

• Click on Federal Taxes
• Click on Wages and Income
• Scroll down to Less Common Income
• On Sale of Home (gain or loss), click the start or update button

If your gain on the sale will be less than the applicable limit, and if it was never used for business or as a rental, and you didn't receive a Form 1099-S, you don't need to report the sale on your return at all. Not having to report the sale could save you from needing to upgrade your TurboTax product.

See this article for more information on determining the gain on the sale of your home.