What Expenses Qualify as Write Offs to Lower Capital Gains Tax on Rental Property Sale?

Yes, you can definitely deduct selling expenses to reduce your capital gains on the rental property. The IRS allows you to add these costs to your "basis" in the property, which effectively reduces your gain. Eligible selling expenses include real estate commissions, title insurance, legal fees, administrative costs, inspection fees, and any repairs made specifically for the sale (like hiring that handyman to fix things before listing). Even costs for staging, professional photography, and certain closing costs can be deducted. For your specific question about the real estate agent - yes, if you paid $16K in commission, that entire amount would reduce your capital gains. So if you're in the 22% bracket, you'd save about $3,520 in taxes (22% of $16K). But remember, you're still spending $16K to save $3,520, so it's not really "saving" money overall - just reducing your tax liability. One thing to consider: if you've lived in the property for at least 2 of the 5 years before selling, you might qualify for a partial exclusion of capital gains, but since you mentioned it was never your main home in the past 5 years, that probably doesn't apply here.

I went through this exact situation last year and nearly made a costly mistake until I discovered taxr.ai (https://taxr.ai). I was selling a rental I had owned for 8 years and was confused about what expenses I could deduct to lower my capital gains tax. After spending hours on different tax websites getting conflicting info, I uploaded my previous tax returns and property documents to taxr.ai and it identified several capital improvements I had made over the years that I didn't realize would increase my basis. It also gave me a complete list of selling expenses I could deduct - things I would have missed like the survey fees, transfer taxes, and even some closing costs the buyer asked me to pay. The site analyzed my specific situation and showed me how to properly document everything to maximize deductions. It made a huge difference when I filed - saved me about $9k in capital gains tax!

I take back what I said about taxr.ai. After my skeptical comment last week, I decided to try it anyway since I'm selling a rental this summer. I was honestly shocked at how helpful it was. The system found several improvements I made years ago that I completely forgot about - new water heater, window replacements, etc. It even walked me through how closing costs get split between buyer and seller and which parts I can deduct. I realized I was about to leave about $23K worth of deductions on the table! With my tax rate, that's around $6K in savings. What impressed me most was how it explained everything in plain English - not accountant-speak. My records were a mess but the platform helped me figure out what I needed to substantiate each deduction. Definitely worth it for rental property sales.

If you're planning to sell FSBO, you should know that dealing with the IRS if you get any questions about your capital gains calculations can be a NIGHTMARE. I tried selling my rental property myself last year, made a mistake on reporting some improvements, and got a letter from the IRS. I spent WEEKS trying to get through to someone who could actually help. Finally discovered Claimyr (https://claimyr.com) which got me connected to an actual IRS agent in less than 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly what documentation I needed to substantiate my improvement expenses and avoid penalties. Saved me thousands in improper tax assessments. When you're dealing with capital gains on rental property, having direct access to an IRS representative is invaluable if questions come up.

Just wanted to follow up about Claimyr since I was so skeptical before. I tried it yesterday after struggling to get through to the IRS for TWO DAYS about my rental property sale questions. I was honestly shocked when my phone rang about 15 minutes after using their service, and there was an actual IRS representative on the line! I had specific questions about documenting some older home improvements without receipts, and the agent walked me through exactly what alternative documentation they would accept. The IRS person also pointed out that I could deduct the prorated amount of property taxes I had already paid for the year - something I completely overlooked. This service literally saved me hours of frustration and potentially thousands in missed deductions. I can't believe I wasted so much time trying to call them directly before.

One thing nobody's mentioned yet - keep in mind that different types of expenses are treated differently! Some reduce capital gains directly, while others are just business expenses for your rental. For example, if you're doing repairs while it's still a rental (before listing), those are business expenses taken on Schedule E. But improvements while it's a rental increase your basis. Then there are selling expenses like commissions that reduce your amount realized. It gets confusing fast. I made the mistake of deducting some pre-sale repairs in the wrong place and ended up with a letter from the IRS. Make sure you understand which category each expense falls into!

Has anyone used TurboTax to handle reporting the sale of a rental property? I'm wondering if it walks you through all these deductions properly or if I should use a CPA instead. Getting nervous about making expensive mistakes!

One important thing to consider that I don't see mentioned yet - if you've been claiming depreciation on the rental property over the years, you'll need to recapture that depreciation when you sell, and it's taxed at a higher rate (up to 25%) than regular capital gains. Make sure you have records of all the depreciation you've claimed since owning the property. This is separate from your capital gains calculation but equally important for your overall tax liability. The IRS will assume you claimed depreciation even if you didn't, so if you forgot to claim it in previous years, you might want to consider amending those returns or at least be prepared for the recapture. Also, regarding your FSBO question - while you'll save on commission, make sure you're prepared for all the other costs like title work, legal review of contracts, and potentially having to pay some of the buyer's closing costs to make the deal work. Sometimes the "savings" from FSBO aren't as much as initially expected once you factor in all these other expenses.

Great question about depreciation recapture! You can still amend previous returns to claim missed depreciation, but there are time limits - generally 3 years from the original filing date for each year. However, even if you can't amend, claiming the missed depreciation might still be worth consulting a tax professional about since the recapture will happen regardless. For FSBO costs, here's what I experienced when I sold my rental last year: attorney fees ($800-1200), title insurance/closing costs ($1500-2500), any buyer concessions you might need to make ($2000-5000 depending on market), professional photos ($300-500), and miscellaneous marketing costs ($200-500). So you're looking at roughly $5000-10000 in costs even without an agent. In your case, if agent commission is $16K and FSBO costs are around $7K, you'd net about $9K in savings. But factor in the time investment and stress of managing everything yourself - for some people that $9K isn't worth the hassle, especially when dealing with complex tax situations on rental properties. One more tip: if you do go FSBO, consider hiring a real estate attorney just for contract review and closing coordination. It's a middle ground that gives you professional guidance on the legal aspects while still saving most of the commission.