Thursday, February 23, 2023 / by Steve Ticknor
Benjamin Franklin once said that "nothing is certain except death and taxes". Well, Uncle Sam expects you to file your 2022 income taxes by April 18th this year. Taxpayers needing more time may file for an extension. This allows you to file as late as October 16th, 2023. If you sold your Lake Havasu house last year, then you may be eligible for some home seller tax deductions.
Home Seller Tax Deductions
Well, "tax deductions" may actually be a little deceiving. Some of these affect your capital gains tax, not your taxable income. If you sold your home and made a profit, congratulations! However, the IRS calls this "capital gains" and views it as income. That means that it is taxable. But the following home seller tax deductions lower your capital gains. In turn, that lowers how much tax you may owe (if any) on this profit.
Capital Gains Exception
First, let's discuss capital gains. This is the difference between what you paid for your home and what you sold it for. So, if you paid $150,000 originally for your Havasu home and sold it in 2022 for $450,000, awesome! You received $300,000 in capital gains. The IRS allows you to keep up to $250,000 (single filers) or $500,000 (married filing jointly) of your capital gains tax-free. Therefore, if you are an individual who sold this house, you only pay taxes on $50,000 ($300,000 capital gains minus $250,000 exception). However, if you are a married couple, you wouldn't have to pay taxes on any of your capital gains.
They say it takes money to make money. That includes selling a home. If you paid for any marketing materials, photography, videography, home staging, etc. when selling your property, you might also be able to deduct these from your capital gains. Even some of your closing costs may go towards lowering your capital gains.
Home Improvement/Repair Costs
Did your property need a bit of TLC before you listed it? I hope you saved your receipts. These may also reduce your capital gains. However, they need to have been done within 90 days of closing. Anything that you did before that is considered more of a home maintenance thing and not related to a home sale. Therefore, you cannot claim it on your taxes.
This one actually is a legitimate home seller tax deduction in that it lowers your taxable income. Whatever interest you paid on your mortgage (if applicable) may be deducted when you file your taxes. But you need to itemize your deductions in order to take advantage of this deduction. The Tax Cuts and Jobs Act (TCJA) of 2017 lowered the amount of interest you may deduct. Before, the limit was the interest paid on up to a $1,000,000 mortgage. TCJA lowered that ceiling to up to a $750,000 mortgage. Fortunately, that still covers most homeowners in Lake Havasu.
Like the mortgage interest deduction, any property taxes you paid before closing on your Havasu home can also be deducted from your taxable income. The IRS caps this at $10,000.
Make sure you talk to your tax preparer about these possible home seller tax deductions before you file. Provide them with your closing statement as well as any receipts you may have for repairs/updates you did to prepare your Lake Havasu home to sell. Good luck!
Originally posted on our Lake Havasu area real estate blog here: https://www.sunstonerp.com/home-seller-tax-deductions/.