Tax Deductions When Selling a Home

What Frisco, Plano, McKinney, and Allen Homeowners Should Understand Before Selling

Selling a home can be a major financial event. Before listing, many homeowners start asking practical questions:

Will I owe tax on the sale?
Do my improvements matter?
What should I save from closing?
Does prior rental use change anything?

Those are important questions—but they should be answered by a qualified CPA, tax professional, or attorney who can review the seller’s complete situation.

This article is not tax advice and is not a list of deductions a homeowner should claim. Its purpose is to help sellers understand the records and questions that may matter before closing, so they can have a more productive conversation with their tax professional.

A Primary Residence Sale May Have Different Rules

Federal tax rules may allow some homeowners to exclude part or all of the gain from the sale of a main home if they meet the applicable ownership, use, timing, and other requirements.

The IRS generally describes a potential exclusion of up to $250,000 of gain for an eligible individual taxpayer, or up to $500,000 on a qualifying joint return. Eligibility is not automatic. It can depend on factors such as ownership history, use of the property as a main home, prior exclusions, marital status, divorce, inherited ownership, periods of rental use, home-office use, military service, and other circumstances.

That is why sellers should avoid assuming that a long period of ownership automatically means the gain will be excluded.

A better question for a CPA is:
“Based on my ownership, occupancy, and property-use history, what tax rules may apply to this sale?”

Keep the Documents That Help Your Tax Professional Review the Sale

The closing statement is important, but it is not the only record that may matter.

Before listing—or as early as possible in the process—gather documents related to the purchase, ownership, improvement, rental history, and sale of the property.

Helpful records may include:

• The original settlement statement or closing disclosure from your purchase
• The final settlement statement or closing disclosure from your sale
• Major improvement invoices, contracts, permits, and paid receipts
• Records of insurance proceeds, casualty losses, or prior property adjustments
• Documents related to rental use, business use, depreciation, or prior exchanges
• HOA records, special-assessment information, and major repair documentation
• Records of prior ownership transfers, divorce agreements, inheritances, or trusts

Your tax professional can determine which records matter to your specific tax calculation. The practical goal is simple: do not wait until tax-filing time to start looking for documents from ten or fifteen years ago.

Improvements and Repairs Are Not Always Treated the Same

Homeowners often assume every dollar spent on a house will reduce the tax impact of a future sale. That is not necessarily how tax rules work.

Some projects may be relevant to a home’s adjusted basis, while routine maintenance and ordinary repairs may be treated differently. The answer can depend on the nature of the work, the documentation available, how the property was used, and the tax rules in effect for the seller’s situation.

For example, a seller may have records for a substantial remodel, roof replacement, room addition, major system upgrade, accessibility modification, or other project that could be important for a tax professional to review.

The safest approach is not to decide for yourself what “counts.”

Save the records. Let your CPA determine how, or whether, they affect your tax return.

Selling Costs Are Worth Documenting—Not Guessing About

Many expenses appear on a seller’s closing statement. Some may be relevant to the tax calculation; others may be handled differently.

Rather than trying to label each item yourself, keep the complete closing package and supporting invoices for your tax professional.

This may include documentation related to commissions, title or settlement charges, transfer-related charges, legal fees, concessions, repairs negotiated during the transaction, and other seller-paid items.

The important point is not that every expense creates a tax benefit.

The important point is that incomplete records make it harder for a CPA to accurately evaluate the sale.

Mortgage Interest and Property Taxes Are Separate Questions

Mortgage interest and property taxes are homeowner expenses, but they should not automatically be treated as part of the gain calculation on a home sale.

Whether those expenses affect a tax return can depend on factors including itemization, timing, payment history, loan structure, use of the property, and current federal and state rules.

Keep the relevant records, but do not assume an expense has the same tax treatment simply because it appears on a closing statement or was paid during the year of sale.

A CPA can help separate these questions:

• What may affect the gain or loss calculation on the sale?
• What may be addressed elsewhere on the tax return?
• What records should be retained after closing?

Rental Homes, Second Homes, and Business Use Need Extra Attention

A property that was rented, used as a second home, used for business, or converted between personal and rental use may involve different tax considerations than a straightforward primary-residence sale.

Prior depreciation, rental periods, business use, mixed use, and timing can all affect the analysis. A property may still have options under certain tax rules, but those answers are highly dependent on the owner’s specific facts.

This is especially important for homeowners who:

• Rented the home before selling
• Used part of the home for business
• Moved out and kept the home as a rental
• Inherited the property
• Owned the property through an LLC, trust, partnership, or other entity
• Are considering a sale of investment or commercial real estate

Do not wait until a buyer is under contract to ask about these issues.

A 1031 Exchange Is Not a Last-Minute Decision

Owners of qualifying business or investment real estate may hear about a Section 1031 like-kind exchange.

A properly structured exchange may allow eligible taxpayers to defer recognition of certain gain when exchanging qualifying business or investment real property for other qualifying real property. It is not the same as a primary-home sale exclusion, and it involves strict timing, documentation, and transaction requirements.

A seller considering a possible exchange should speak with a qualified intermediary and tax or legal professional before the property is sold or marketed as an ordinary sale.

Do not assume a 1031 exchange can be added after closing.

Why These Questions Matter Before You List

Tax planning should not be an afterthought once the sale is complete.

Before listing, a homeowner can take practical steps without making tax decisions:

• Gather purchase, improvement, and prior-sale records
• Identify whether the home was ever rented or used for business
• Ask a CPA for a review of potential tax questions before closing
• Preserve all final closing documents
• Avoid relying on online calculators or informal advice for a property-specific answer

At Cindy Coggins Realty Group, we help homeowners prepare for the real estate side of a sale: pricing, timing, preparation, marketing, negotiation, and closing coordination.

We do not provide tax, legal, accounting, or financial advice. But we believe sellers are better protected when they identify tax questions early and bring the right records to the right professionals.

Thinking about selling in Frisco, Plano, McKinney, Allen, or elsewhere in North Texas?

Cindy Coggins, Team Lead
Call or text: (469) 499-7452
Email: cindycoggins@kw.com

Barry Coggins, Commercial Real Estate Division Manager
Call or text: 817-846-7148
Email: barrycoggins@kw.com

Sources:

IRS Publication 523 — Selling Your Home
https://www.irs.gov/publications/p523

IRS Topic No. 701 — Sale of Your Home
https://www.irs.gov/taxtopics/tc701

IRS Publication 530 — Tax Information for Homeowners
https://www.irs.gov/publications/p530

IRS — Like-Kind Exchanges: Real Estate Tax Tips
https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips

IRS Form 8824 — Like-Kind Exchanges
https://www.irs.gov/forms-pubs/about-form-8824

Disclaimer:

This article is provided for general educational and informational purposes only. It is not tax, legal, accounting, financial, investment, lending, or real estate advice.

Cindy Coggins Realty Group, Cindy Coggins, Barry Coggins, and affiliated agents do not provide tax, legal, accounting, or financial advice and do not determine a seller’s tax liability, deductions, exclusions, basis, depreciation, exchange eligibility, or reporting obligations.

Tax laws and IRS guidance can change. The tax treatment of a home sale depends on each seller’s individual facts, records, ownership history, occupancy, filing status, property use, prior transactions, and other circumstances.

Before making decisions related to the sale of a primary residence, second home, rental property, investment property, or commercial property, consult a qualified CPA, enrolled agent, tax attorney, or other appropriately licensed tax professional.

Information is deemed reliable but not guaranteed.

Frequently Asked Questions to Ask Before Selling a Home With Possible Tax Questions

What should I tell my CPA before listing the home?

Share whether the property was ever rented, used for business, inherited, owned with someone else, transferred through divorce, held in a trust or entity, or involved in a prior exchange. Your CPA can tell you which details need closer review.

Should I wait until I have an offer before asking tax questions?

It is usually better to ask early. Some situations may involve timing, documentation, or transaction-planning questions that are harder to address once a buyer is already under contract.

What if I cannot find older improvement records?

Tell your tax professional what is missing and provide any supporting documents you do have, such as permits, old photos, contractor names, bank records, insurance paperwork, or prior listing materials. Do not create estimates or assume a tax treatment on your own.

Should I give my CPA the entire closing package?

Yes. Provide the complete purchase and sale closing documents, not only selected pages. Your CPA can identify which figures and seller-paid items may be relevant.

What should I save if I receive money from an insurance claim before selling?

Keep the claim correspondence, adjuster reports, payment records, repair invoices, and any documentation showing what work was completed. Your tax professional can determine whether those records matter.

Can a real estate agent tell me what I will owe in taxes?

No. Your agent can help organize property and transaction documents, but tax liability, deductions, exclusions, basis, depreciation, and reporting should be reviewed by a qualified CPA, enrolled agent, or tax attorney.

What is the safest way to handle a tax question I cannot answer?

Write it down, save the related records, and ask a qualified tax professional before making a decision. It is better to identify an issue early than rely on an assumption after closing.