ABA Family Legal Guide

Buying and Selling a Home

Tax Considerations

Tax Considerations When Selling Your Home

How do I determine my profit?

You can calculate your profit by subtracting the adjusted cost basis of your home from its adjusted sales price. You can compute the adjusted cost basis by subtracting certain items such as the sales commission, lawyer's fees, and fix-up expenses from the price of your home when you bought it.

To calculate the adjusted sales price, start with the selling price. Then subtract the cost of capital improvements made while you owned the home and closing costs not deducted when you bought it. Note that you may not subtract the cost of repairs. The IRS is very strict about what it considers improvements. For example, repairing a water heater is not considered an improvement, but adding a dishwasher is one. Also, you may deduct the labor costs paid to a tradesperson (such as a carpenter), but not any costs for your own labor. The IRS requires home sellers to complete a form in the year of the sale that includes these calculations. You also will want to keep all receipts for any costs you are deducting from the sale. Without such written proof, the IRS is not likely to allow your deductions.