01/21/2025
DID YOU KNOW some of your real estate transaction is tax deductible??
Several items are tax deductible for buyers and sellers in real estate transactions, depending on their specific situation:
For Buyers:
1. Mortgage interest: You can deduct mortgage interest from the year of purchase until the mortgage is paid off[1].
2. Loan origination fees and points: These may be deductible in the year they are paid, provided certain conditions are met, such as the mortgage being used for your primary home[2].
3. Real estate taxes: Property taxes based on the assessed value of your property are deductible, including those paid at settlement or closing[1][6].
4. Home office expenses: If you use a portion of your home exclusively for business, you may be eligible to deduct a percentage of mortgage interest, property taxes, utilities, and maintenance costs[4].
For Sellers:
1. Selling costs: You can reduce your taxable gain by deducting costs associated with selling your home, including real estate broker's commissions and title insurance[1].
2. Home improvements: When selling your home, you can add the costs of major home improvements done since purchase to your cost basis, potentially reducing the tax on gains from the sale[1].
3. Capital gains exclusion: If you've lived in the house for at least two of the five years before the sale, you may qualify for a capital gains exclusion of up to $250,000 for single homeowners or $500,000 for married couples filing jointly[1][3].
For Both Buyers and Sellers:
1. State and local taxes: Deductions for state and local taxes, including real estate taxes, are limited to $10,000 ($5,000 if married filing separately)[6].
2. Interest fees: If you're a real estate business owner, interest paid on business loans or lines of credit may be 100% tax-deductible[4].
It's important to note that these deductions often require itemizing rather than taking the standard deduction. Additionally, some closing costs may be added to the basis of the property rather than deducted immediately[2][5]. Always consult with a tax professional to ensure you're claiming the correct deductions for your specific situation.
Citations:
[1] https://turbotax.intuit.com/tax-tips/home-ownership/video-tax-deductions-when-buying-or-selling-a-home/L2anRGlwp
[2] https://www.lendingtree.com/home/mortgage/are-closing-costs-tax-deductible/
[3] https://www.nolo.com/legal-encyclopedia/when-home-sellers-can-reduce-capital-gains-tax-using-expenses-sale.html
[4] https://www.bench.co/blog/tax-tips/tax-deductions-for-real-estate-agents
[5] https://www.thetaxadviser.com/issues/2011/jun/witner-jun2011.html
[6] https://www.irs.gov/publications/p530
[7] https://support.taxslayerpro.com/hc/en-us/articles/360009170634-Real-Estate-Transactions-What-is-Deductible
[8] https://www.irs.gov/taxtopics/tc503
