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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 11861
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Are the closing costs portion of a home sale by it's heir

Customer Question

Are the closing costs portion of a home sale by it's heir
tax deductible if completed within the 2yr legal limit
Submitted: 2 years ago.
Category: Tax
Expert:  Lane replied 2 years ago.
The way this works is that the seller has a capital gain (or loss) and that gain is taxed (for inherited assets) at the long-term capital gains rate.
Long-term gains and qualified dividends taxed at
0% if taxable income falls in the 10% or 15% marginal tax brackets
15% if taxable income falls in the 25%, 28%, 33%, or 35% marginal tax brackets
20% if taxable income falls in the 39.6% marginal tax bracket
Capital Gain = Sales price minus basis
And basis for someone who inherits, is the fair market value of the property as of date of death of the person leaving the asset.
So, as you can see, the taxes for a seller of a property doesn't have to do with income and expense (taxable income a deductions) but rather about selling something for more that their basis and having a capital gain, and that gain being taxable at a special (capital gains rate) rate.
Now, as to your question ... any closing costs, commissions, even painting the house to get ready to sell that were paid by the seller ARE added TO their basis for purposes of calculating their gain.
So, yes, even there' not a deduction per se, any dollars actually paid by the seller DO lower the capital gain, thereby lowering the sellers tax on sale.
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