Overview
Selling costs, like your real estate commission and qualifying capital improvements, don't work as a typical tax deduction; instead, they reduce your taxable gain by increasing your home's cost basis. Property taxes and mortgage interest paid during the year of sale are separate itemized deductions on Schedule A, and 2026 brought a major change here: the SALT cap on property and state tax deductions jumped from $10,000 to $40,400, making itemizing worthwhile for far more sellers than in recent years. Most sellers who lived in the home for at least two of the last five years can also exclude up to $250,000 ($500,000 for married couples) of capital gain from tax entirely.
Selling Costs Reduce Your Taxable Gain
Your real estate commission is typically the largest expense in a sale, and it works in your favor at tax time, but not as a standalone deduction. Instead, commissions and other selling costs (attorney fees, title fees, and similar transaction costs) are subtracted from your sale price when calculating your capital gain. The net effect is the same as a deduction: a lower taxable gain, just calculated differently than a typical write-off.
Home Improvements Increase Your Cost Basis
Money spent on capital improvements, a new roof, a kitchen renovation, a finished basement, works similarly. Routine repairs and maintenance don't count, but genuine improvements that add value increase your home's cost basis, which reduces your taxable gain when you sell. Keep receipts and records of this work, since you'll need them to support the higher basis if you're ever asked to substantiate it.
Property Taxes and Mortgage Interest
Property taxes and mortgage interest paid during the year, up through your date of sale, are itemized deductions claimed on Schedule A, separate from the sale itself. Whether itemizing makes sense for you now depends heavily on a major 2026 change: the SALT cap (which covers property taxes and state income taxes combined) rose from $10,000 to $40,400 for most filers, thanks to the 2025 tax law overhaul. That's a significant shift, since the old $10,000 cap pushed the large majority of filers toward the standard deduction instead. Combined with mortgage interest (generally deductible on up to $750,000 of acquisition debt for homes bought after December 15, 2017), many sellers who previously found itemizing pointless may now come out ahead by itemizing in their year of sale. Run the numbers against your specific standard deduction amount before assuming either way.
Capital Gains Exclusion
If you lived in the home as your primary residence for at least two of the five years before selling, you can typically exclude up to $250,000 of gain ($500,000 for married couples filing jointly) from capital gains tax entirely, under Section 121. This exclusion can generally only be used once every two years, and doesn't require you to itemize to claim it.
What's Not Deductible
Some sale-related and homeownership costs don't reduce your taxes at all:
- Home staging costs: can help you sell faster and for more, but aren't deductible.
- Homeowners insurance: not deductible, even for the portion of the year you owned the home.
- Routine repairs and maintenance: not deductible, even when done specifically to prepare for sale.
- HOA or condo association fees: not deductible, even when they fund improvements to shared common areas.
- Your original purchase price: not a deduction; it's part of your cost basis calculation, not a separate write-off.
