Yes, many closing costs when selling a home are not directly deducted but are added to your home's cost basis, which reduces your taxable capital gain, while other specific costs (like mortgage interest or property taxes paid at closing) might be itemized deductions on Schedule A, though adding them to basis is usually more beneficial for capital gains. Key selling expenses like realtor commissions, legal fees, and title costs are added to your basis to lower the overall profit, potentially keeping you under the $250k/$500k gain exclusion, notes SmartAsset.
Generally speaking, closing costs are not allowable as a deduction on your return. They are an increase in your basis or cost of the property to you. When you sell the property your basis may be adjusted which results in a smaller gain on the sale of the property.
You can deduct costs to acquire and improve assets (like sales tax, installation, and major renovations), incidental costs of selling (commissions, legal fees, advertising), and capital losses (up to $3,000 against ordinary income, with excess carrying over) from your capital gains, plus potentially exclude gains from selling your primary home if you meet IRS rules.
Use a 1031 exchange
A 1031 exchange, also referred to as a like-kind exchange, lets you defer capital gains taxes when you sell a rental property. The caveat is that you must reinvest the proceeds into a similar investment property.
When selling a house, you can deduct the cost of capital improvements (like additions or new roofs), selling expenses (commissions, legal fees), and certain closing costs (title fees, recording fees) from your gain, plus you can potentially exclude up to $250,000 (or $500,000 jointly) of the remaining gain if it was your main home for two of the last five years, according to IRS Publication 523.
When you sell a home, you won't have to pay capital gains taxes on the first $250,000 of the profit on your sale if you are single or $500,000 if you're married. You can offset the taxes on your profit by adding your closing costs and the costs of any home improvements you've made to your cost basis.
For instance, you can potentially use losses in some investments to offset a portion of capital gains taxes in others. For example, if you had a gain of $2,000 from the sale of Stock A, but saw a loss of $1,600 in Stock B, you could take the $1,600 loss and use it to offset part of your $2,000 gain.
Repairs and maintenance costs aren't deductible for CGT purposes, although they may be claimed against rental income during the ownership period. Capital improvements, on the other hand – those that upgrade, enhance, or add value to the property – can be deducted from your gain, helping to reduce your final CGT bill.
Tax Deductions for Closing Costs
According to the IRS, the only closing costs tax write off you can claim in the year you purchase or build your home are: Mortgage interest (including points paid to reduce your interest rate) Real estate (property) taxes.
On a $100,000 capital gain, you'll likely pay 15% for long-term gains, resulting in about $15,000 in federal tax (plus potential state tax), but it could be 0% or 20% depending on your total taxable income and filing status, while short-term gains are taxed as ordinary income (potentially 22-24%).
The 20% rule for capital gains refers to the highest federal tax rate for long-term capital gains, applying to higher income brackets when you sell investments (stocks, real estate) held for over a year, with lower rates of 0% and 15% for lower incomes, and even higher rates for special assets like collectibles. This rate kicks in for single filers earning over approximately $492,300 (2024) or $533,401 (2025), and higher for joint filers, making holding assets over a year a key tax strategy.
One of the simplest yet most expensive mistakes is misunderstanding the difference between short-term and long-term capital gains taxes. Short-term gains — profits from assets held less than a year — are subject to typical income tax rates, which can reach 37% for high earners.
From the proceeds value (or deemed proceeds value), you should deduct the allowable costs, which include the original purchase price, enhancement expenditure (such as capital improvements) and incidental costs of acquisition and disposal (such as legal fees, surveyor fees, stamp duty land tax and estate agent fees).
Capital gains tax rates
A capital gains rate of 0% applies if your taxable income is less than or equal to: $48,350 for single and married filing separately; $96,700 for married filing jointly and qualifying surviving spouse; and. $64,750 for head of household.
The "6-year rule" for Capital Gains Tax (CGT) in Australia allows you to treat a former main residence as tax-exempt for up to six years after you move out, even if you rent it out, enabling you to avoid CGT on any growth during that period. You qualify by moving out, choosing to treat it as your main home for tax, and can reset the rule by moving back in. If you rent it out for longer than six years, only the portion of the gain after the six-year mark becomes taxable.
Capital improvements: Improvements that add value to your home or prolong its useful life can reduce the amount of capital gains tax you owe when you sell your home, but won't be immediately deductible.