The Tax Impact of Selling/Buying a Home

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houessold-2.jpgBuying or selling a home is one the absolute biggest events in a person’s life. You have to look for a home/buyer, figure out the finances, get all moved in or moved out and you also have to figure out your tax situation. While Wyndham Capital Mortgage can’t help you with every step of buying or selling a home, we can give you a bit of guidance on the tax impact of selling a home or buying a home.

Standard and Itemized Deductions

houses.jpgOnce you become an official homeowner, you have the option of deducting your property taxes as well as the interest you pay on your home loan. One thing we caution is that you don’t get too hung up on how much you can deduct on your taxes, mainly because the deduction may not be as much as you hope. Additionally, there are different deduction rates for single and married individuals as well as heads of the household. When deciding whether to choose itemized deductions or the standard deduction, you’re likely better off with the standard deduction if your itemized deductions don’t equal more than your filing status amount.


In terms of what you can choose from when you’re itemizing deductions, your options include:

  • The points you paid to decrease the interest you pay on your home loan
  • The interest you pay on your home loan
  • A percentage of the closing costs
  • Property taxes

For the best results, you’ll want to consult with a professional and experienced accountant.



Investment Property

While real estate makes for a great investment, it’s best that you understand the tax implications of investing in a residential property. The rent your tenants pay you is classified as taxable income, so be sure you keep that in mind as you’re determining how much you’ll owe the IRS next tax season. To offset this, know that you can write off the insurance you pay on your real estate investment as well as any maintenance or repairs done on the property, so be sure to keep up with your receipts.



Related: Buying a Second Home? 5 Things You Should Know 



Selling Your Home in the Previous Year

If you succeeded in selling your home last year, first of all, congratulations! Now, the tax you have to fork over for that sale is determined by if you made a profit. While individual taxpayers can exclude as much as $250,000 in profits and married taxpayers can exclude as much as $500,000, you have to have resided in the home for at least two of the last five years and have used it as a primary residence in order to qualify for the capital gains tax exclusion. That being said, there are exceptions, which is something else to discuss with an accountant.


Paying Your Taxes the Right Way

If you do have to pay taxes on your new home, it’s essential that you do it right. Specifically, you’ll want to work with your accountant to figure oCalculator paperut the adjusted basis of your home, which is the price you paid for the property in addition to any renovations made minus overall depreciation. To be clear, depreciation in this case is tax credits, such as making energy-efficient renovations, home office credits and the tax credit that’s available for individuals buying a home for the first time. You also have to deduct the closings costs you paid on the home, which includes title insurance, broker’s commission, administrative costs and legal fees.



After you’ve celebrated the monumental impact of buying a home or selling a home, be sure you don’t forget to schedule a meeting with your accountant to determine your tax situation. Even if tax day is several months away, it never hurts to get a head start. More questions? Let us help!



With more than 21 years in the industry, we’re a leading fintech mortgage lender saving current and potential homeowners money and time through transparent rates, zero junk lender fees*, and technology that automates over five million tasks each month. We’ve served over 100,000 borrowers, boast a 98% customer satisfaction rating and 4.9 stars on thousands of online reviews, and provide a “mortgages without migraines” experience. (*Note: Wyndham does not charge junk fees, application fees, processing fees, or underwriting fees. There can be fees charged directly by Third Parties for services such as, but not limited to, title, settlement, appraisal, taxes, and insurance.)

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