What expenses are deductible when selling an inherited house?
When selling an inherited house, there are several expenses that may be deductible, depending on the circumstances and applicable tax laws. Understanding which expenses are deductible can help reduce the tax burden on the seller and potentially increase the overall profit from the sale. In this article, we will explore the various deductible expenses associated with selling an inherited property.
1. Real Estate Agent Fees
One of the most common deductible expenses when selling an inherited house is the real estate agent fee. This fee is typically paid to the real estate agent or broker who helps facilitate the sale of the property. According to the IRS, real estate agent fees are deductible as a selling expense, provided that they are directly related to the sale of the inherited property.
2. Advertising Costs
Advertising costs incurred to sell the inherited house are also deductible. This includes expenses for online listings, print advertisements, and any other promotional materials used to market the property. To be deductible, these costs must be ordinary and necessary for the sale of the inherited property.
3. Repairs and Maintenance
Expenses related to repairs and maintenance of the inherited house may be deductible if they are necessary to bring the property to marketable condition. This can include repairs to fix broken appliances, painting, or landscaping. However, the deductible amount is limited to the amount that exceeds the property’s basis, which is the original value of the property plus any improvements made by the inheritor.
4. Title Insurance
Title insurance is a policy that protects the buyer and lender from any legal issues related to the property’s title. If title insurance is purchased to sell the inherited house, the cost can be deductible as a selling expense. This is particularly relevant if there are any disputes or claims on the property’s title that need to be resolved before the sale can proceed.
5. Legal Fees
Legal fees incurred during the sale process, such as those associated with drafting contracts or resolving title issues, may be deductible. These fees are considered ordinary and necessary expenses related to the sale of the inherited property.
6. Closing Costs
While not all closing costs are deductible, some may be. For example, if the seller pays for the buyer’s title insurance, this cost can be deductible. Additionally, if the seller is responsible for paying points on a new mortgage taken out to purchase the inherited property, these points may be deductible as well.
7. Capital Gains Tax
It’s important to note that while certain expenses are deductible, the capital gains tax on the sale of an inherited house may still apply. The capital gains tax is calculated based on the difference between the selling price and the property’s basis. However, there are certain exceptions and exclusions that may apply, depending on the circumstances of the inheritance.
In conclusion, when selling an inherited house, there are several expenses that may be deductible, including real estate agent fees, advertising costs, repairs and maintenance, title insurance, legal fees, closing costs, and capital gains tax. Understanding these deductions can help sellers minimize their tax liability and maximize their profits from the sale. It is always advisable to consult with a tax professional or financial advisor to ensure compliance with applicable tax laws and maximize the benefits of these deductions.
