With the dreaded date of April 15 approaching all too quickly, many Americans are looking for a ray of sunshine in the dark cloud of tax season. The good news about taxes for home sellers is that there are a lot of ways to reduce or eliminate the taxes due from sale of your home. Since 1997, home sellers have benefited from a change in the capital gains tax exemption. You can claim the exemption if the property was your primary residence for at least 2 of the past 5 years. Then you can keep capital gains of up to $500,000 for married couples filing jointly and up to $250,000 for singles or married couples filing separately. So, for a lot of sellers, it is possible this rule will completely exempt them from paying tax on the sale of their home.
There are also quite a few selling costs that can reduce the amount of capital gain realized from the sale of a home. You can still deduct your property taxes for the portion of the year that you owned the home. If you paid points when you financed the purchase of your home, you can also deduct the remaining value of those points. You can also deduct anything that counts as a selling cost. This includes costs like legal fees, brokerage commission, and any money the seller contributes towards closing expenses such as the home inspection, title insurance, and appraisal. Home improvements made within 90 days of the closing are also considered selling costs since they increase the likelihood of a completed home sale.