If you’re planning to sell your home, now is the time to prepare financially. Understanding home seller tax tips before year-end can help you minimize tax liability, maximize deductions, and avoid costly mistakes. Here’s what every seller should consider before the year closes.
Understand Capital Gains Exclusions
Know the Section 121 Exclusion (Primary Home)
One of the most powerful tax tools for home sellers is the Section 121 exclusion. If you’ve owned and used your home as your primary residence for at least 2 of the 5 years before the sale, you may exclude:
- Up to $250,000 of gain if single
- Up to $500,000 of gain if married filing jointly
That means, for many sellers, a large portion (or all) of the gain can be tax-free under federal rules. However, you can only use this exclusion if you haven’t claimed it on another home in the past two years. If your gain is bigger than the exclusion, or you fail the ownership/use test, the excess gain becomes taxable.
Track Selling Costs for Deductions
Certain expenses tied to the sale—like real estate commissions, title fees, and legal costs—may reduce your taxable gain. Keeping organized records ensures you can claim every eligible deduction.
Improve Your Tax Position with Upgrades
Energy-efficient improvements or necessary repairs completed before selling may qualify for tax benefits. Discussing these with a tax professional before year-end could unlock additional savings.
Consider Timing Your Closing
Closing before or after December 31 can change how your profits and deductions fall into the current tax year. If you’re close to listing, consult your tax advisor on whether pushing into the new year makes sense.
Watch for Possible Tax Law Changes
Tax laws are always subject to change, staying in touch with a tax advisor or watching legislative shifts is important in the months before your sale. While current rules remain as outlined above, changes are under discussion that could reshape outcomes for home sellers:
- There are proposals to raise the long-term capital gains rate for high-income individuals, possibly to as high as 28% (or more, including NIIT)
- Past budgets proposed doubling the capital gains rate to 39.6% for those with income over $1 million. That has not passed yet.
- The Tax Cuts and Jobs Act (TCJA) provisions are set to begin expiring (sunsetting) after 2025 unless Congress acts. This could indirectly affect deductions, brackets, or related tax treatment.
The Bottom Line
Smart planning with home seller tax tips before year-end can make a significant difference in what you keep from your sale.
Ready to discuss how timing and strategy impact your sale? Let’s schedule a consultation to position your home—and your finances—for the best outcome.
