5 Tax Deductions Every Home Seller Should Know

You may be wondering if there’s any way to ease the tax bite when selling your home. The short answer? Absolutely. I’ve helped plenty of clients navigate home sales, and the right deductions can save you thousands—sometimes without you even realizing it.

If you sold a home recently—or are planning to—understanding these deductions is crucial. The 2017 Tax Cuts and Jobs Act shook things up a bit, and there have been some updates in 2023 too. That means the rules you remember from a few years ago might not fully apply anymore.

Here’s the thing: selling your home isn’t just about finding the right buyer or staging your rooms. It’s also a financial event that can impact your taxes significantly. From closing costs to home improvements and even the capital gains exclusion, there are opportunities to reduce your taxable income if you know where to look.

In this article, I’ll walk you through the key tax deductions every home seller should know about. By the end, you’ll have a clear sense of what expenses you can claim—and how they actually affect your bottom line. Let’s make sure you don’t leave any money on the table.

1. Selling Costs Deduction

When you sell your home, you might be surprised at how many expenses can actually lower your taxes. I’ve seen homeowners overlook this because they think only mortgage interest or property taxes count—but that’s not the case.

Think about everything you spent just to get your home on the market: real estate agent commissions, legal fees, escrow costs, advertising, even staging. If you paid for it, and it was directly tied to selling your home, it can reduce your taxable gains.

I always tell clients to keep meticulous records of these expenses—you’ll thank yourself when it comes time to file.

Here’s the kicker: you don’t deduct these like mortgage interest. Instead, you subtract them from the home’s sales price. That lower number reduces your capital gains, which is where the real savings come in. If you ask me, that little bookkeeping effort can make a surprisingly big difference.

While you’re keeping track of selling expenses, it’s also smart to understand how home appraisals can affect your final sale price—this guide on must-know appraisal facts can help.

2. Home Improvements and Repairs

Now let’s talk about home improvements. I know, I know—you probably think painting the kitchen or fixing the roof is just part of getting your house ready to sell. But here’s the secret: those costs can also help reduce your taxes.

If you made upgrades to make your home more marketable, you can add those expenses to your selling costs—as long as the work was done within about 90 days of closing. I’ve seen sellers renovate a few rooms at the last minute and forget to track receipts, only to miss out on deductions they easily could have claimed.

I always tell clients: keep a folder of every invoice and proof of payment. Even small repairs—like replacing a water heater or patching a roof—can add up and increase your cost basis.

The higher your cost basis, the lower your taxable profit. And that’s exactly what we want when you’re aiming to keep more money in your pocket.

If this is your first time selling, you might also find these 11 expert tips helpful to make the process smoother and more profitable.

3. Property Taxes

Here’s one that’s easy to forget if you’re focused on staging and negotiating offers: property taxes. I make it a point to remind everyone that the taxes you’ve paid up to the sale date—capped at $10,000—are deductible. That includes the portion of taxes prorated for the year you owned the home.

If you’ve been diligent about paying your property taxes, you’re already sitting on a deduction you shouldn’t ignore. I like to walk clients through exactly how to calculate this portion so there’s no guesswork. You’ll see it reflected when you file, and it can take a decent chunk off your tax bill.

Even if you’re not a numbers person, keeping good records of property taxes is simple, and the payoff is tangible. That little bit of preparation can save you more than you might expect.

For those considering a DIY sale, it’s crucial to understand all the financial implications, including taxes. Check out these 10 things to know before selling your home yourself to avoid common pitfalls.

4. Mortgage Interest

One of the deductions I see homeowners underutilize is mortgage interest. You might be surprised, but the interest you pay on your mortgage up to the date of sale can actually reduce your taxable income—if you itemize your deductions.

Under the 2017 tax code, you can deduct interest on up to $750,000 of mortgage debt for newer loans. If your mortgage predates December 15, 2017, that limit is $1 million. I always remind clients to check this because it can make a real difference in their tax bill.

The key here is planning: mortgage interest is an itemized deduction, so it only helps if your total itemized deductions exceed the standard deduction ($27,700 for married couples filing jointly in 2023). I often tell sellers: run the numbers both ways—you might be leaving money on the table if you don’t.

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5. Capital Gains Exclusion

Now let’s talk about what I call the “big one”: the capital gains exclusion. This isn’t technically a deduction, but it can have the biggest impact on your wallet when you sell.

Here’s how it works: any profit you make from selling your home—after subtracting expenses and mortgage payoff—is considered a capital gain. But if you’ve lived in your home at least two of the last five years, you can exclude up to $250,000 if you’re single or $500,000 if married.

I always advise keeping careful track of your home’s cost basis—this includes the purchase price plus any improvements you made. Realtor emphasizes that properly tracking improvements and selling costs can maximize this exclusion.

Basically, the higher your cost basis, the smaller your taxable gain, and the more money you keep in your pocket.

Just a heads-up: lawmakers have discussed changes that could alter the residency requirement in the future, so it’s worth staying updated.

Have you used any of these deductions when selling a home? Share your experience in the comments—I’d love to hear what worked for you!

Additional Tips for Home Sellers

If there’s one thing I always tell people, it’s this: organization pays. Keep every receipt, every invoice, and a detailed record of improvements. You’ll thank yourself when tax time rolls around.

I also recommend consulting a tax professional, even if you feel confident handling deductions yourself. Tax laws change, and a quick conversation with an expert can prevent costly mistakes.

Finally, think of these deductions as part of your overall selling strategy. They aren’t just about numbers—they’re about making smart choices that put more money back in your pocket and reduce stress.

Final Thoughts

Selling your home can feel overwhelming, but understanding the right tax deductions gives you a real advantage. I’ve walked many clients through this process, and the difference it makes in their bottom line is often surprising.

By tracking your selling costs, improvements, property taxes, mortgage interest, and capital gains, you can keep more of what you’ve earned and reduce unnecessary stress.

Remember: a little planning goes a long way. Take a few minutes now to organize your records, and you’ll thank yourself when tax season arrives. It’s not just about saving money—it’s about making your home sale work for you.

Want more expert tips on selling your home and maximizing your profits? Check out our Real Estate & Homeownership section for all the details.

Disclaimer: This article is for informational purposes only and is not tax advice. Tax laws change frequently, so consult a certified tax professional for guidance. Your individual circumstances may affect which deductions apply.