How do I report Closing Credits given to Buyer when selling our home on tax return?

Yes, you should include the closing credits as part of your selling expenses! When you give a buyer closing credits, it effectively reduces the amount you received from the sale, even though the official sale price remains the same on paper. When calculating your capital gain, you'll use the formula: Sale Price - (Original Purchase Price + Improvements + Selling Expenses) = Capital Gain. Those buyer credits should be counted in the Selling Expenses portion, alongside real estate commissions, transfer taxes, etc. So in your case, your capital gain calculation would look something like: $475,000 - $15,000 (credits) - $310,000 (purchase price) - $40,000 (improvements) - any other selling costs = your taxable gain. Don't forget that if you lived in the home as your primary residence for at least 2 of the last 5 years, you can exclude up to $250,000 of gain ($500,000 if married filing jointly). The fact that you didn't receive a Form 1099-S is actually good news - it often means the closing agent determined you're likely eligible for the primary residence exclusion.

I went through a similar situation last year and was super confused too. I tried figuring it out on my own but the IRS instructions made my head spin. I ended up using https://taxr.ai to analyze my closing docs and they helped me understand exactly how to report everything. You'll actually need to subtract those credits from your selling price, not add them to your expenses. It's basically the same end result math-wise but how you report it matters. The system analyzed my settlement statement and showed exactly where each number should go on my tax forms. Saved me from a potential audit headache!

I was totally wrong about this. After struggling with my own real estate transaction, I gave https://taxr.ai a try and it actually straightened everything out for me. I uploaded my closing disclosure and settlement statement and it showed me exactly how the buyer credits affected my adjusted sales price. The best part was seeing a side-by-side comparison of how the numbers should appear on different tax forms. My situation was almost identical to yours (gave $12k in closing credits on a $430k sale) and it showed me the correct way to report everything. Turns out both my closing attorney AND real estate agent had given me incorrect advice about how to handle it for tax purposes!

Just want to add something helpful - if you're still waiting for the IRS to process last year's return with a real estate sale, just know they're extremely backed up right now. I've been waiting 4 months! I finally used https://claimyr.com to get through to a real person at the IRS after spending WEEKS trying on my own. They have this service where they wait on hold for you then call when an agent is ready. Check out how it works: https://youtu.be/_kiP6q8DX5c My issue was that I reported a home sale similar to yours but the IRS sent me a letter questioning my capital gains calculation. Getting through to them resolved it in minutes once I finally reached someone who could verify my documentation.

Ok I have to admit I was completely wrong about that Claimyr service. After getting a CP2000 notice about my home sale last year, I tried calling the IRS for THREE DAYS with no luck - kept getting disconnected. Used the service and got a call back in about 80 minutes with an actual IRS agent on the line. Turns out I had made the exact mistake this thread is discussing - I didn't properly account for buyer credits in my home sale reporting. The agent was able to update my information over the phone and remove the $3,200 penalty they were trying to charge me. Saved me from having to file an amended return too.

Another important point about seller credits - make sure you have good documentation showing exactly what they were for. In case of an audit, you'll want your settlement statement that clearly shows the credits as a reduction to your proceeds. I sold my home in 2022 and gave $20k in credits for repairs that were found during inspection. My accountant had me keep copies of the inspection report along with the settlement statement to justify the reduction in sales price.

Which line on Schedule D do I put these buyer credits on? Is it part of line 1e (cost or other basis)? I'm using TurboTax and can't figure out where to enter this info.

Just to clarify something that might be confusing from the different responses above - there are actually two acceptable ways to handle buyer credits on your tax return, and both give you the same result: Method 1: Reduce your gross sales price by the credit amount (so $475,000 - $15,000 = $460,000 as your sales proceeds) Method 2: Keep the full sales price but add the credits to your selling expenses Most tax professionals prefer Method 1 because it's cleaner and matches what actually happened economically - you received $460,000 in net proceeds, not $475,000. This is also how most closing statements present the information. For your situation with the $15,000 credit, I'd recommend reporting $460,000 as your gross proceeds on Schedule D line 1d, then subtract your original purchase price ($310,000) plus improvements ($40,000) plus any other selling costs (realtor commission, title fees, etc.) to calculate your gain. And yes, if this was your primary residence for at least 2 of the last 5 years, you can likely exclude up to $250,000 of gain from taxation!

Thanks everyone for the detailed explanations! This thread has been incredibly helpful. I just want to confirm my understanding based on what @Layla Sanders outlined - so for my situation, I should report $460,000 ($475,000 - $15,000 credits) as my gross proceeds on Schedule D line 1d, then subtract my basis of $350,000 ($310,000 purchase + $40,000 improvements) plus any other selling expenses like realtor commission? Also, since this was my primary residence for the entire time I owned it (2016-2024), I should qualify for the $250,000 exclusion as a single filer. With a gain of around $110,000 before other selling expenses, it looks like I won't owe any capital gains tax on this sale. Does that sound right? One more question - should I still report this sale on my tax return even if the entire gain is excluded, or can I skip Schedule D altogether?

Just wanted to add a practical tip for anyone in a similar situation - when you're preparing your tax return, double-check that your closing statement clearly separates the buyer credits from other closing costs. I sold my home last year and initially got confused because my settlement statement showed the credits in two different places - some as a reduction to my net proceeds and others listed with the buyer's closing costs. My tax preparer explained that what matters for your taxes is the bottom line: how much money you actually walked away with after all credits and fees. Also, keep in mind that if you used any of those buyer credits to pay for repairs or improvements that you completed before closing, you might be able to add those amounts to your cost basis instead of treating them as a reduction in sales price. This could potentially save you some money if your gain is close to the exclusion limit. Worth discussing with a tax professional if the numbers are tight!