The Seller's Closing Costs & Tax Write-Offs

When you sell a home, most closing costs are not tax deductible.

Sold Home For Sale Sign on Burst image by Andy Dean from

Home seller closing costs vary a great deal, depending on where you live -- and most of these expenses are not tax deductible. You do get to take certain traditional tax deductions, such as any interest and real estate taxes you paid as part of closing. However, other costs, such as the fee you pay your real estate agent, are not tax write-offs. If the home is not a personal residence, but an investment property, you may deduct legal and title fees as legitimate business expenses.

Mortgage Interest and Real Estate Tax

You may have to pay mortgage interest due at closing. This expense remains tax deductible, as it was while you owned the property. The same is true for any final real estate taxes that are due at closing. Unless you close on a tax payment date, which varies according to where you live, you may owe some real estate tax. In most cases, you will give the buyer a credit for tax you owe up to the closing date.

Owner-Occupied and Second Homes

When you sell a personal residence, closing costs, such as attorney and realtor fees, are not tax deductible. Just as when you are a purchaser, most closing costs are not tax write-offs. On the plus side, you may add these expenses to the cost basis of your home, which minimizes any capital gains tax requirements. On the other hand, many people never pay capital gains tax on their home sale: the IRS allows you to make up to $250,000 profit -- $500,000 if you're married and file jointly -- without paying capital gains tax.

Investment property

IRS rules allow you to write off operating expenses and some other costs you pay for investment property. Few closing costs, however, fit IRS rules. Those closing costs that are not immediate write-offs can often be added to the cost basis of the property, reducing capital gains taxes, if you made a profit. The tax exemption available when you sell a personal residence does not apply to the sales of investment homes. However, you may be able to deduct legal fees and some additional expenses you pay when selling your property.

Repairs and Improvements

If you sell a personal residence needing repairs and include the cost as part of closing expenses, you cannot deduct this amount. However, if you are paying the cost of repairs for an investment property, you may deduct this expense from your rental income for the current year. Whether you make improvements to a personal residence or investment property, you must capitalize the expense and make them part of the cost basis of the home. Increasing the home's cost could lower capital gains taxes due.