- Are Excise Taxes Reportable on the Sale of a Residence?
- Can I Deduct Realtors' Commissions on My Income Tax Return?
- How Soon Does Money From Selling a House Have to Be Invested So No Capital Gain Tax Is Paid?
- Can I Deduct Local Taxes From a Tax Return?
- Can You Deduct House Insurance on Schedule A?
- The Seller's Closing Costs & Tax Write-Offs
When real estate changes hands, taxes become an important issue. In a typical property deal, the seller agrees to pay excise taxes which are levied on the sale by both state and local taxing authorities. An excise tax is not a "sales tax," even though it is paid when a home is sold. For that reason, it is not a deductible expense -- but it does reduce the proceeds of your sale.
Some states levy an excise tax when you sell property. While tax rates vary by state, any tax levied by the state will be uniform in all localities. A city, county or township may also levy excise tax, however, and the rate varies by location. In Washington state, for example, the state excise tax on real estate sales stood at 1.28 percent as of 2013, while most cities levied an additional 0.25 or 0.50 percent. This is not the same as a "sales tax," which is levied on the buyers of merchandise such as clothing, cars and (in some states) food.
Although the IRS allows you to deduct state sales or income taxes, the rules do not allow you to deduct any state or local excise taxes paid on the sale of your property. You may reduce the proceeds of your sale by the amount of excise tax paid on the transaction, however, which will in turn reduce any capital gains on the transaction.
Income or Sales Taxes
The total amount received for your home will appear on Form 1099-S. The settlement statement on the sale will show the amount of excise taxes paid by the seller (as well as any charged to the buyer). If the buyer is responsible for paying any portion of the excise tax, the IRS will consider that amount as a refund of state and local taxes, and will not allow you to subtract it from the proceeds of the sale.
Other Costs and Exclusions
Excise taxes are only a portion of costs you can use to reduce the proceeds of your sale. Other expenses include agent commissions, transfer taxes, liens and outstanding mortgage amounts that you paid, and appraisal fees. There's no use for the excise tax and other adjustments if you sell a relatively inexpensive home; as of 2012, the IRS allowed individual homeowners to exclude $250,000 in capital gains on the sale of a principal home from income tax.
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