Buying a home is one of the most significant investments of your lifetime. In addition to cashing in on your equity, did you know there were deductions available for the expenses you encounter when you’re selling your house? You can keep even more of your profits by utilizing these tax benefits to your advantage. You will find it well worth the efforts involved in wading through the red tape when you sell your home. You will thank yourself later by getting into the habit of keeping careful records.
Keep in mind that planning your exit strategy when buying can help you make the right move at the right time. On the other hand, moving too soon may disqualify you, so it is essential to pay attention to all of the rules for each deduction, including deadlines. Naturally, there are limitations and specific guidelines with each deduction, and you will want to be aware of the most recent tax laws to optimize your tax strategy.
If saving money interests you, you will want to pay attention as we discuss the four top tax deductions for homeowners selling their homes in Chicago.
Capital Gains Tax
Depending on how long you have owned and lived in the property, capital gains tax deductions for homeowners come into play when you sell your principal home in Chicago, which has increased value from the original investment amount known as the basis. If you earned a profit, this is known as unearned income and is taxed differently than earned income. Suppose you have not done so in the past two years. In that case, individuals can exclude up to $250,000, and married couples that file jointly can exclude up to $500,000 in capital appreciation for primary residences. It is crucial to keep an eye on the future, as proposed tax laws require flexibility with your purchase and exit strategies. Investors making over $1 million may see their capital gains rate increase should the proposed American Families Plan pass.
Provided that there are no physical changes to the property itself, you can take tax deductions for the expenses homeowners encounter selling their homes in Chicago. These may be legal fees, advertising, or even the real estate commission and other fees that are directly associated with the sale of your property. While not directly deducted from your taxes, these expenses offset your profits and reduce your capital gains tax. Under certain conditions, you may also deduct improvements or significant repairs to improve the sales price and staging expenses. While the closing costs such as legal fees for the title search, title insurance, or recording fees are not deductible, you can reduce your capital gains by lowering the profit when you add these expenses to the cost basis of your home.
Among the tax deductions for homeowners selling their homes in Chicago are property, state, or local income taxes or sales tax limited to a total deduction of $10,000 for married couples filing jointly. You must have already paid the taxes, and you must have done so in the year you are filing for you to claim them. If you pay your taxes with your mortgage, verify that the mortgage company made the payment to the county. In addition to your primary residence, you may be able to write off taxes on your vacation home, land, or even property located out of the country. Among other possible possessions, you can deduct the interest for are your car, RV, or boat. Be sure you understand clearly the tax laws regarding which assessments and which payments you may deduct from your taxes.
Mortgage interest tax deductions are an incentive for homeownership. As with the property tax deductions for homeowners selling their homes in Chicago, you can only deduct the mortgage interest for the portion of the year filed that you still owned the house. The maximum amount for the mortgage principal changed in the Tax Cuts and Jobs Act (TCJA) of 2017 to $750,000 for new loans. The TCJA doubled the standardized deductions as well, $25,100 for married couples filing jointly in 2021, so you would only deduct the qualifying mortgage interest over and above this amount. Private mortgage insurance, PMI, is tax-deductible currently as well. Should you have financed energy-saving home improvements, any interest on these loans might also be deductible as home mortgage interest.
Talk to BAM Home Buyers about these and other tax deductions homeowners should be aware of when selling your Chicago home. The professionals at BAM Home Buyers want to help you get the best profit possible. With years of experience, we can help guide you. And if you’re buying another home, BAM Home Buyers has an inventory of the best properties. Call BAM Home Buyers at (847) 802-8999 or send us a message to see how we can help you.