Maximize Your Savings: The Ultimate Tax Prep Checklist for Home Sellers
Selling your home is an exciting milestone, but if you’re not careful, taxes could take a bigger chunk of your profit than you expect. The good news? With the right preparation, you can maximize your savings and avoid unnecessary tax liabilities. This ultimate tax prep checklist will guide you through the key steps to keep more of your hard-earned money.
1. Check Your Capital Gains Tax Exclusion Eligibility
One of the biggest tax advantages for home sellers is the capital gains tax exclusion. If you have lived in your home for at least two of the last five years, you may be eligible to exclude up to $250,000 (single filers) or $500,000 (married filers) of profit from capital gains taxes.
✅ Have you owned and used your home as your primary residence for at least two years in the past five years? ✅ Have you sold another home and claimed this exclusion in the past two years? (If yes, you may not qualify.)
2. Gather Receipts for Home Improvements
Your home improvement costs can significantly impact your taxable profit. Major renovations—like a new roof, kitchen remodel, or HVAC system replacement—can be added to your home’s cost basis, reducing your capital gains tax liability.
✅ Keep detailed records of renovations, upgrades, and maintenance that improve your home’s value. ✅ Expenses like new windows, landscaping, and bathroom remodels may count.
3. Calculate Your Cost Basis Correctly
Understanding your cost basis helps determine your taxable gain. Your cost basis includes:
✔️ Original purchase price of the home ✔️ Major home improvements and renovations ✔️ Closing costs paid at purchase (legal fees, title insurance, etc.)
Formula:
Cost Basis = Purchase Price + Home Improvements + Closing Costs
If your selling price minus your cost basis exceeds the capital gains exclusion limit, that portion will be taxable.
4. Understand State and Local Taxes
Not all states have the same tax rules. New York sellers, take note! The Empire State has additional real estate taxes you must consider:
✅ NYC Transfer Tax: 1% for homes under $500,000, 1.425% for homes over $500,000. ✅ Mansion Tax: 1% tax on properties over $1 million. ✅ State Capital Gains Tax: Additional state taxes may apply on your sale profits.
5. Consider Moving Expense Deductions
In some cases, moving expenses may be tax-deductible, especially if you’re relocating for work or active military duty. While the IRS has tightened restrictions on who qualifies, it’s worth checking with a tax professional.
✅ Did you move due to a job relocation or military orders? ✅ Were your moving expenses unreimbursed by an employer?
6. Explore a 1031 Exchange for Investment Properties
If you're selling an investment property and planning to reinvest in another, a 1031 exchange can help you defer capital gains taxes.
✅ Are you selling a rental or investment property? ✅ Do you plan to reinvest your profits into a like-kind property?
7. Consult a Real Estate-Savvy Tax Professional
Taxes are complex, and real estate transactions can add even more layers. A real estate-focused tax professional can help ensure you’re taking advantage of every possible deduction and not overpaying taxes.
✅ Have you reviewed your tax liability with an expert before finalizing your home sale? ✅ Are you aware of any state-specific tax credits or deductions?
Final Thoughts: Keep More of Your Profit!
Selling your home is a big financial move, and a little planning can go a long way in ensuring you keep as much profit as possible. Following this checklist will help you navigate tax liabilities and avoid unnecessary costs.
📌 Need expert real estate guidance? I’m Peter Mancini of Pen Realty, a proud member of REBNY & BNYMLS, and I’m here to help make your home sale as profitable and stress-free as possible.
📞 Let’s connect! Reach out today to discuss your home-selling strategy! 🚀
