Can You Deduct Realtor Fees From Capital Gains?

We’ve written a lot about capital gains. We’ve explained what they are, and when they might trigger a taxable event. Although many of Realized’s previous blogs focus on capital gains when selling investment real estate or other capital assets, it’s also possible to generate capital gains from the sale of your primary residence or home. 

Can Realtor Fees Be Deducted From Capital Gains?

Can you reduce capital gains from your primary residence? Specifically, can you deduct realtor fees from the capital gains generated from that activity? Yes, you can. In fact, you might benefit from multiple deductions when selling your home. This, in turn, could help reduce capital gains (and the potential capital gains tax you might have to pay). 

According to Realtor.com, any costs tied to the sale of your home can be deducted from your proceeds. This can include (but isn’t limited to) legal and escrow fees, advertising costs, and real estate commissions. Staging fees could also be included in the above mix. 

But there are conditions for deducting the above from the home sale price: 

• You must have lived in the home for at least two of the five years before the sale 
• The home must be your principal residence, and not used for investment purposes

Furthermore, selling expenses generated from the sale (such as real estate commissions or related fees) must not physically impact the property. Staging and adding fresh flowers to your home’s interior can be deducted. Cleaning your carpets, repainting the house, or hiring a landscaper to increase your home’s curb appeal can’t. 

According to the IRS, sales commissions and related expenses are part of the cost of selling your property. But remember that you can’t deduct those fees like your home mortgage interest. Instead, you would subtract those commission fees from the sales price received from the sale. 

For example, if you sell your house for $300,000 and pay a 6% commission to your selling realtor, the IRS considers that the resulting $282,000 is your actual sales price. 

Deductions for realtor fees, commissions, and other selling expenses are only part of the calculations you should consider when selling your home. There are other deductions and issues to consider during the process. As such, it’s a good idea to consult with a tax advisor when selling your home.