Real Estate Staging / Home Staging Blog

head_left_image

TAX MAN COMETH for Seller's... but NOT if I Can Help It!

Another POSTIVE reason why home sellers can benifit from Home Staging is because the fees for a staging services can be considered an advertising fee (See IRS Publication 523) and influence a seller's capitol gain or loss on a property that has been sold.

What is IRS Publication 523 and what does it say? IRS Publication 523 explains all tax rules that apply when a home seller sells their main home, including advertising expenses and how they influence the seller's capital gain or loss on the property.  It does not cover the sale of a rental property, second home or vacation home.

What does IRS Publication 523 consider seller's main home? The term "main home" usually refers to the home the seller lives in most of the time.  A main home can be a house, houseboat, mobile home, cooperative apartment, or condominium.

How is capital gain or loss figured on the sale of a seller's main home? In order for a home seller to calculate the capital gain or loss realized on the sale of their main home, they must know the selling price, the amount realized and the adjusted basis. 

What is the selling price? The selling price is the total amount a seller receives for the sale of their home, including money, all notes, mortgages, or other debts assumed by the buyer as part of the sale and the fair market value of any other property or services they receive.

What is the amount realized? The amount realized is the selling price minus selling expenses.  Selling expenses include commissions, advertising fees*, legal fees and loan charges paid by the seller.

*Staging a home for re-sale can be considered an Advertising fee.  There are no time limits on the Advertising Fees related to the sale for the IRS.  However, it is important to note that if a property does not sell and is taken off the market, expenses for that transaction are NOT deductible in the future.

What is the adjusted basis? During the duration of ownership of a main home, increases or decreases (adjustments) may have been made to the basis (base cost, either bought or built, of home).  This adjusted basis must be determined before capital gain or loss can be figured on the sale of the home.  There are many rules when computing the adjusted basis.  Consult a Tax Adviser to accurately determine the adjusted basis. 

To quickly estimate capital gain or loss, apply the following formulas:

  • First Calculate: AMOUNT REALIZED = Selling Price - Selling Expenses
  • Next Calculate: CAPITOL GAIN/LOSS = Amount Realized - Adjusted Basis

IMPORTANT: EVERY HOME SALES TRANSACTION IS DIFFERENT. TO KNOW HOW THIS TAX RULE EFFECTS A PARTICULAR HOME SALE IN YOUR STATE, PLEASE CHECK WITH A TAX ADVISER OR TAX CONSULTANT REGARDING IRS PUBLICATION 523 AND HOW IT MAY AFFECT YOUR SELLER'S INDIVIDUAL TAX SITUATION.  More information on IRS Publication 523 can be found on line at: http://www.irs.gov/publications/p523/index.html  

Comment balloon 22 commentsCraig Schiller • March 30 2007 11:54AM

Comments

Craig - people may accuse me of 'favoritism' but it's hard not to 'feature' just about every one of your posts. Especially incredibly practical and helpful ones like this one. Thanks for making such consistent quality contributions to our community AND consumers!

Posted by Rich Jacobson, Your Kitsap County WA Real Estate Broker (Fathom Realty West Sound) over 13 years ago

Hi Craig - I can't help but echo Rich's comments about your posts and all the great info you usually have in them.  This is another one of those that has great points in it, for both agents and consumers.

Thanks for this information!
Ann

Posted by Ann Cummings, Portsmouth NH Real Estate Preferrable Agent (RE/MAX Shoreline - NH and Maine) over 13 years ago

As always I love to read you posts Craig....they are informative for sure.  Thank you again for your time writing this.

 

Patricia Aulson/Seacoast/NH & ME

Posted by Patricia Aulson, Realtor - Portsmouth NH Homes-Hampton NH Homes (BERKSHIRE HATHAWAY HOME SERVICES Verani Realty NH Real Estate ) over 13 years ago
Craig - You had me going for a moment until I read the disclaimer at the end - I thought you had moved into the accounting field!
Posted by Tony and Suzanne Marriott, Associate Brokers, Haven Express @ Keller Williams Arizona Realty (Serving the Greater Phoenix and Scottsdale Metropolitan Area) over 13 years ago
Craig - I was aware that staging services could be deducted as advertising expense but I never had the info to back up the claim.  Thank you so much for making tax law so easily understandable!!!
(Bookmarked)
Posted by Maureen Maureen over 13 years ago

Craig,

I am LOVING Sam Sam the IRS Man!

Thanks for reminding us of this fact - I've known about it for a while but never think to mention it to sellers or realtors!  I don't think that I'll forget again thanks to Sam Sam the IRS Man! (it almost rhymes - how cool is that!)

VAL

Posted by Val Allocco, HSE; ASHSR - Home Stager, for Manhattan, Brooklyn & Long Island (Staged 2 Sell New York & Long Island) over 13 years ago
Craigs -  Thanks so much for sharing this bit of info.  This is of great value to pass onto realtors and clients.  Sue
Posted by sue over 13 years ago
Very detailed and even I could understand it lol.  Me
Posted by Carole Cohen, Realtor, ePRO (Howard Hanna Cleveland City Office) over 13 years ago

Thanks, Craig. I assumed this was the case but thanks for the clarification, etc. I always tell folks to consult a tax advisor, too, on these sorts of issues. Good post.

Jeff

Posted by Jeff Dowler, CRS, The Southern California Relocation Dude (eXp Realty of California, Inc.) over 13 years ago

This is great info to share with clients and they can follow up on it as they choose.  For sure if your doing something radically different like selling your home or starting a new business - you should seek professional help. 

I mean with your taxes, of course.

Posted by Kathleen Lordbock, Keller Williams Realty Professionals (Keller Williams Realty Professionals) over 13 years ago

Just forwarded your post to a client whose home just sold after I staged it. 

Thanks for sharing the info, Craig...extremely valuable!

Veronica

Select Home Staging

Denver, Colorado

www.selecthomestaging.com 

Posted by Veronica Harbert, Select Home Staging (Select Home Staging) over 13 years ago
Craig, as always, great stuff. Taxes are like a banana peel on the ground, we never want to slip on them, because we could get hurt. (Sorry, little late night humor)  Enjoyed your post and some of the comments as well! Good information to pass along to the folks in my area.
Posted by Brad Andersohn, ActiveBrad - 707.646.1876 (Executive Director of Education at eXp Realty) over 13 years ago

Craig,

That's great information! Great information to share with clients! Thanks

Posted by Fran White, Kansas City North Real Estate, 816-682-3897 (North Kansas City Real Estate, Reece and Nichols Residential) over 13 years ago
Craig, good info and especially to consult their tax consultant, as always...it's always great to put the ideas out there for those that may not be aware and give them food for thought.
Posted by Gena Riede, Real Estate Broker - Sacramento CA Real Estate (916) 417-2699 (Riede Real Estate, Lic. 01310792) over 13 years ago
Hi Craig -I am always working the right side of my brain - and forget these great and fabulous reasons why people MUST Stage!  Do you sleep?  You are truly FABULOUS!  The mountain man reminds me of that Robert Redford movie....
Posted by Margaret Ann Innis, Real Estate Staging - MA & NH (Decorate To Sell - Merrimack Valley Real Estate Staging ) over 13 years ago

OK Craig: I just filed my taxes—like the self-employed, I pay quarterly, and, it seems never quite enough. I came over here looking for a grin—instead I get version of the TAXMAN COMMETH! ;-)

Jay
Posted by Boomer Jack Boardman & Carl McIntyre, the Codgers (Noted Curmudgeons) over 13 years ago

Never thought of that and that is an excellent marketing tool for us. Hmm, will have to start telling them this, then again the realtors use our consult fee as a write off so that makes sense.

Phyllis Pafumi

Posted by Phyllis Pafumi, ReStyled to Sell Staging Homes NJ (ReStyled to Sell Home Staging New Jersey) over 13 years ago

You explained a complicated topic well, thanks for taking the time!

Also, capitol gains is not charged on the sale of your main home if you have owned it for more than 2 years, correct?  (unless you net more than something like 250,000 individual or 500,000 joint off the top of my head so don't quote me!) 

Do you know if one can deduct the advertising expenses for a second home or investment property from their gain (or loss as it may be?)

Posted by Jessica Hughes (Ambiance Staging) over 13 years ago

Craig,

Hey thanks for putting this out there, complete with proper citation !! What do you think about the costs of following your stager's advice, i.e. costs of painting, fencing in the yard, flooring, upgrading kitchen appliances, lighitng etc.? Have you got a perspective on whether the IRS can view these are advertising costs ?  If so, then proper documentation would be the key...a staging report that includes those items that is dated concurrent with marketing the home.

 

Posted by Paula Springer, A.S.P. (Key Elements Inc. Home Staging & Interiors) over 13 years ago

Very useful article, I am especially focused on the following statement:  "However, it is important to note that if a property does not sell and is taken off the market, expenses for that transaction are NOT deductible in the future." So if I had 3 months worth of staging costs at the end of last year, my house did not sell so I took it off the market, can I deduct those costs as advertising expenses per ITS Pub 523, for tax year 2008? By the word 'future', I assume you mean that, in this example, I cannot deduct these 2008 expenses for tax year 2009 if I put the house back on the market and it sells in '09. Please clarify! Many thanks.

Posted by Kay George over 11 years ago

Kay,


First I am not a Tax expert. It is my understanding that the costs can ONLY be deducted IF the home sells.

Otherwise no. BUT this is MY understanding. Please consult a tax professional for your state.

Me

Posted by Craig Schiller over 11 years ago

Thank you, I appreciate the response.

Posted by Kay George over 11 years ago

Participate