One of the things you can take advantage of when selling a home is tax deductions. We all know that it is not always an easy decision to sell a home. Hence, there is a huge chance that you probably have not previously made any financial decisions that are as huge as this.
Selling your home will yield massive returns if you sell it the right way. This implies that making the right decisions will ensure that you make a huge amount of money from the sale of your home. However, we all are aware the tax goes where the money goes. This means that you should be expecting a call from the IRS as soon as the money hits your account.
While most people dread the idea of a tax bill, only a few know that there are some tax deductions they can take advantage of when selling their homes. Knowing what they are and taking advantage of them will literally mean more profits for you.
Here are a few tax deductions you should take advantage of when selling a home:
- DEDUCTING SALE-RELATED IMPROVEMENTS AND REPAIR COSTS: In most cases, your realtor will advise you to make a few improvements and repairs to your home to increase your chances of making more money from the sale. Everyone would prefer to avoid spending more cash on a home they are about to sell. However, you shouldn’t be overwhelmed with this.
All you need to do to be able to deduct the improvements and repairs cost from your home sale is ensuring that you relate them to the sale itself. However, you should know that the repairs or improvements made must be done within 90 days of the proposed closing date. This means that you only have 3 months to sell your home after improvements or repairs for the IRS to consider them eligible for the deduction.
While IRS deducts repairs like leaky roof repairs within a year after the sale, improvements like adding solar panels are often deducted after several years. Click to learn more.
- DEDUCTING MORTGAGE INTEREST: It is possible to deduct mortgage interest accrued during the period of time your home is up for sale. Hence, you need to avoid underestimating the importance of keeping thorough financial records. This means that you need to have the records of the selling date easily accessible during auditing to ensure that mortgage interest is deducted within a year after the sale. As long as your mortgage interest doesn’t exceed the $1 million limit, you have nothing to worry about.
- DEDUCTING MORTGAGE DISCOUNT POINTS: Most people often forget that they can deduct mortgage discount points from their tax when selling a home. However, this deduction is only possible if you stay in your home before selling it was short. The IRS allows home sellers to deduct a significant portion of their discount points annually until they have paid off their mortgage. However, you must have paid discount points in cash as an attempt to reduce your interest rate to qualify for this.
In conclusion, you will increase your home sale profit if you understand and take advantage of the tax deductions listed above.