What is counted vs. not counted when taking $250k deduction on sale of house?

The $250k exclusion ($500k if married filing jointly) applies to your gain, not the selling price. Your gain is generally calculated as selling price minus purchase price minus selling expenses minus capital improvements. In your example, if you bought for $375k and sold for $625k, your initial gain is $250k. But you can deduct the $50k in selling expenses (realtor commission, title fees, etc.), bringing your gain down to $200k. Since this is below the $250k exclusion, you'd have no taxable gain. For the HVAC system, since it's part of your selling expenses paid at closing, it's deductible from your gain. The $8k buyer credit is also considered a reduction of your selling price, so that reduces your gain too. For home improvements, timing matters. If you replaced the HVAC before deciding to sell, it would be a capital improvement that increases your basis (effectively reducing your gain). If it's negotiated as part of the sale, it's a selling expense. Your realtor can't just increase their commission to include repair costs - that would be misrepresenting the actual transaction and could be considered tax fraud. Escrow companies report the gross proceeds from real estate transactions to the IRS on Form 1099-S, but they don't calculate your gain - that's your responsibility when filing taxes.

After struggling with this exact question when selling my house last year, I found an amazing tool called taxr.ai that really helped me figure out what counted toward my gain calculation. I was getting different answers from friends and even my realtor wasn't sure about how to handle the repairs I agreed to make as part of the sale. I uploaded my closing documents, purchase papers, and receipts for home improvements to https://taxr.ai and their AI analyzed everything to properly calculate my exact gain and what qualified for the $250k exclusion. It identified several capital improvements I had forgotten about (like a water heater from 3 years ago) that increased my basis. Their tool was able to distinguish between regular repairs (not deductible) and capital improvements (which reduce your gain). It even had a specific section for seller concessions and closing costs that helped me understand exactly what could be deducted from my gain.

Just wanted to follow up after trying taxr.ai from the recommendation above. I was worried about my spotty documentation for home improvements over the 10 years I owned my house, but this actually saved me thousands in taxes! I had only been tracking major renovations (kitchen and master bath), but completely forgot about the windows we replaced, the deck we rebuilt, and the landscaping drainage system we installed. The tool helped me properly document and value all these improvements, increasing my basis by over $45,000 that I would have missed. It also clearly separated what counts as a repair versus a capital improvement, which I was completely confused about before. Turns out the new roof and HVAC were improvements that increased my basis, while the painting and minor plumbing fixes weren't. Would have seriously overpaid on my taxes without this guidance!

If you're struggling to get clear answers from the IRS on what counts toward your home sale exclusion, I highly recommend using Claimyr. I was in a similar situation last year - sold my house with lots of repairs and buyer credits and couldn't figure out what was deductible. After wasting hours on hold with the IRS (literally 3+ hours each time) and getting disconnected twice, I tried https://claimyr.com and watched their demo video here: https://youtu.be/_kiP6q8DX5c They got me connected to an actual IRS representative in about 15 minutes instead of the 3+ hour wait I was experiencing before. The agent walked me through exactly how to calculate my basis, what selling expenses were deductible, and how to handle the repairs I agreed to as part of the sale. Turns out I was calculating everything wrong and would have significantly overpaid my taxes. The call with the IRS rep saved me thousands and gave me the confidence that I was filing correctly.

I need to eat crow on my previous comment about Claimyr. After waiting on hold with the IRS for 4 hours yesterday only to be disconnected again, I was desperate enough to try the service I called a scam. I'm genuinely shocked - it actually worked exactly as advertised. I got connected to an IRS agent in about 20 minutes, and they resolved my question about calculating capital gains on my home sale with all the various closing costs and seller concessions. The IRS agent confirmed that I could deduct the roof repair I paid for at closing, explained how the buyer credits affect my sale price calculation, and clarified that my landscaping projects only count if they were improvements (not regular maintenance). Most importantly, they confirmed I needed documentation for all my improvement claims. Saved me from a potential audit headache since I was planning to just estimate some costs. I've never been happier to be wrong about something!

Don't forget about state capital gains taxes too! I made this mistake last year. I carefully calculated everything for federal taxes and stayed under the $250k exclusion, but my state (California) had different rules about certain deductions. Also, keep track of how long you've owned and lived in the house. You need to have owned AND used it as your primary residence for at least 2 of the last 5 years to qualify for the full exclusion. If you've only lived there for 1 year, you might only get half the exclusion.

Has anyone here used the IRS's Interactive Tax Assistant for this? I tried using it but got confused about what counts as "improvements" versus "repairs" when calculating my basis.

Great question! I went through this exact process last year when selling my home. One thing that really helped me was keeping a detailed spreadsheet of all improvements from day one of ownership. Even seemingly small things like a new water heater or upgraded electrical outlets can add up to significant basis adjustments. For your situation, you're actually in pretty good shape. With a $250k gain before any adjustments, you're right at the exclusion limit. But remember that the $12k HVAC and $8k buyer credit will reduce your gain further, and any documented improvements over the years will increase your basis. A few practical tips: Keep ALL receipts from improvements (take photos and store them digitally too). For the HVAC situation, since it's being paid at closing as part of the sale negotiation, it's definitely a selling expense that reduces your gain. Don't let your realtor talk you into creative commission arrangements - stick to legitimate, documented transactions. Also, consider having a tax professional review your calculation before filing. Home sales can get complex quickly, and the potential tax savings usually justify the cost of getting it right the first time.