How should I report Closing Credits given to Buyer when selling a home on my tax return?
I sold my house last summer and had to offer some closing credits to the buyer to make the deal happen in this crazy market. Now I'm working on my taxes and I'm confused about how to report these closing credits. Do I include them as part of my sales expenses or closing costs when I report the sale on my tax return? The sale went through in July 2023, and I ended up giving about $7,500 in closing credits to get the buyer to sign. My real estate agent said something about this affecting my "net proceeds" but wasn't clear about the tax implications. I didn't receive a Form 1099-S for the transaction. I'm using TurboTax and want to make sure I'm entering everything correctly since this was a significant sale. Anyone dealt with this before or know the right way to handle closing credits given to a buyer?
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Ava Martinez
When you sell a home and provide closing credits to the buyer, those credits effectively reduce your sale price for tax purposes. You should report the sale price as the contract price minus the closing credits you provided to the buyer. For example, if your contract sale price was $350,000 and you gave $7,500 in closing credits, you would report a sale price of $342,500 on your tax return. This is because those credits effectively reduced what you received from the transaction. Since you didn't receive a Form 1099-S, you'll still need to report the sale on your tax return if you don't qualify for the full home sale exclusion ($250,000 for single filers or $500,000 for married filing jointly). You'll report the sale on Schedule D and Form 8949.
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Miguel Ortiz
•Thanks for the explanation, but I'm a little confused. If I report the lower amount as my sale price, do I still list the closing credits anywhere separately on my return? And does this affect my basis in the property at all?
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Ava Martinez
•You don't need to list the closing credits separately anywhere. The reduced sale price (contract price minus closing credits) is what you'll report as your proceeds from the sale. The closing credits don't affect your basis in the property. Your basis is typically what you originally paid for the home plus any qualifying improvements you made over the years, minus any depreciation if you ever used part of the home for business. The closing credits only affect the proceeds side of the equation when calculating your gain or loss.
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Zainab Omar
I went through something similar last year and was totally confused until I used taxr.ai to analyze my closing documents. I had to offer closing credits to my buyers too, and wasn't sure how to handle it on my taxes. I uploaded my HUD-1 and closing statement to https://taxr.ai and it immediately identified the buyer credits as a reduction to my sale proceeds rather than an expense. The tool breaks down all the different closing costs and tells you exactly which ones affect your basis, which ones are immediate deductions, and which ones reduce your sales price. It saved me from miscalculating my capital gains by about $9,000!
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Connor Murphy
•How accurate is this? I'm closing on my house next month and already worried about messing up my taxes. Does it actually explain WHY certain costs go in different categories or just tell you where to put them?
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Yara Sayegh
•I'm skeptical about using some random website with my financial documents. How do they protect your data? My closing statement has all sorts of personal info on it.
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Zainab Omar
•The explanations are surprisingly detailed. It doesn't just tell you where to categorize things, but explains the tax rules behind each classification. For example, it explained that buyer credits aren't technically expenses but rather reductions to the sale price because you never actually received that money in the transaction. They use bank-level encryption for all document uploads and don't store your documents after processing. I was worried about that too, but they have a whole section explaining their security practices. They're also clear that they don't use your data for anything else or share it with third parties.
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Connor Murphy
Just wanted to update - I tried taxr.ai after my closing last week and it was incredibly helpful! I had $12,000 in seller concessions that I wouldn't have known how to report correctly. The system flagged them immediately and showed exactly how they affected my net proceeds. It also identified some closing costs I paid that actually get added to my basis rather than being immediate deductions, which my agent had wrong. Definitely recommend for anyone selling property!
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NebulaNova
If you're still having trouble figuring this out, you might want to call the IRS directly. I know it sounds crazy because nobody can ever get through, but I used a service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in under 15 minutes. There's a video showing how it works here: https://youtu.be/_kiP6q8DX5c I had a similar question about seller concessions on a home sale last year, and the agent walked me through exactly how to report it correctly. They confirmed that seller credits to the buyer reduce your sale proceeds, rather than being listed as an expense. Super helpful and saved me a potential audit headache.
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Keisha Williams
•Wait, how does this actually work? I've tried calling the IRS like 5 times and always hang up after being on hold for an hour. Does it just keep calling for you or something?
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Paolo Conti
•Sounds like BS to me. Nobody gets through to the IRS in 15 mins. They answer something like 10% of calls during tax season. Not buying it.
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NebulaNova
•It uses a system that navigates the IRS phone tree for you and then calls you back when it gets a human on the line. So you don't have to sit on hold for hours - you just get a call when an agent is ready to talk to you. It works with their callback system but avoids the wait time somehow. It's definitely real - I was super skeptical too. I tried calling on my own three times and never got through. With Claimyr I was talking to an agent in about 12 minutes, and they were able to answer my specific questions about how to report seller concessions.
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Paolo Conti
Ok I need to eat my words. I tried Claimyr after posting that skeptical comment above. I've literally been trying to reach the IRS for 2 weeks about a missing refund, and I was connected to an agent in 18 minutes. The agent was able to tell me my refund was flagged for review due to a mismatch with my reported mortgage interest. They unflagged it right there on the call after I explained the situation. My refund should be processed now within 2 weeks. Never would have resolved this without actually talking to someone!
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Amina Diallo
Something to remember about home sales - if you lived in the home as your primary residence for at least 2 out of the 5 years before selling, you might qualify for the capital gains exclusion ($250k single/$500k married). If your profit falls under that threshold after accounting for the closing credits, you might not need to report the sale at all.
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StarSeeker
•Yes, we did live there for 4 years as our primary residence, so we should qualify for the exclusion. Our profit is definitely under the $500k married threshold. Does that mean I don't need to report the sale at all, even with the closing credits situation?
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Amina Diallo
•If your profit is under the exclusion threshold after accounting for all factors (including those closing credits reducing your sale price), and you meet the residency requirements, you typically don't need to report the sale on your tax return. However, there are some exceptions where you would still need to report it even if no tax is due - like if you received a 1099-S (which you mentioned you didn't), if part of your home was used for business, or if you have depreciation recapture from a home office. If none of those apply to you, you generally don't need to report the sale.
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Oliver Schulz
Don't forget that proper documentation is key here! Keep your HUD-1 or closing disclosure, along with documentation of the original purchase and any major improvements you made to the property. The IRS has been looking more closely at home sales in recent years.
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Natasha Kuznetsova
•Would improvements like a new roof or HVAC system count toward increasing my basis? I replaced both a few years before selling.
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Ava Johnson
•Yes, major improvements like a new roof or HVAC system typically qualify as capital improvements that increase your basis in the property. These aren't regular maintenance expenses - they're improvements that add value or extend the useful life of your home. Keep all receipts and documentation for these improvements as they directly reduce any taxable gain when you sell. The IRS distinguishes between repairs (which don't affect basis) and improvements (which do increase basis).
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Eduardo Silva
Just went through this exact situation last year! I had to give $8,200 in closing credits to my buyers and was completely lost on how to handle it tax-wise. What helped me was understanding that the closing credits aren't really an "expense" you deduct - they just reduce what you actually received from the sale. Think of it this way: if your contract was for $400,000 but you gave $7,500 in closing credits, you effectively only received $392,500. That's what you report as your sale price. The credits never actually went into your pocket, so they can't be your proceeds. One thing that caught me off guard - make sure you're calculating your gain correctly by using your adjusted basis (original purchase price plus qualifying improvements minus any depreciation). Since you mentioned you might qualify for the capital gains exclusion anyway, you'll want to double-check that your total gain is under the threshold before deciding whether you even need to report the sale. Keep all your closing documents - the settlement statement will clearly show the credits, which makes it easy to document if the IRS ever has questions.
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Ava Thompson
•This is really helpful! I'm dealing with a similar situation right now - we're under contract to sell our home and already agreed to $5,000 in closing credits to help the buyers with their costs. I've been stressing about how to handle this on our taxes since it's our first time selling a home. Your explanation about it reducing the actual proceeds rather than being a separate expense makes so much sense. Did you end up needing to report the sale at all, or did you qualify for the full exclusion? We should be well under the $500k threshold but want to make sure we handle everything correctly.
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