Can You Deduct Realtor Fees From Capital Gains?

Can You Deduct Realtor Fees From Capital Gains?

Posted by Sebastian Abrigo on Nov 27, 2022

partners-hero-realtorsWe’ve written a great deal about the concept of capital gains. We’ve explained what they are, and when they might trigger a taxable event. Though 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 you take deductions to reduce the amount of capital gains from the sale of your primary residence? Specifically, can you deduct realtor fees from 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 the amount of your 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 in the above mix. 

But there are conditions when it comes to deducting the above from the sale prices of the home: 

  • 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, the selling expenses generated from the sale (such as real estate commission 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 using the services of 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 keep in mind that you can’t deduct those fees like you might write off your home mortgage interest. Rather, 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. 

Deduction of 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 it comes time to sell your home. 

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. 

Hypothetical examples shown are for illustrative purposes only. 

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. 

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