Cost of selling a house: what sellers pay and deduct

What are the main costs a seller can face?

Think of the bill in four groups. Some are set by law, some by your contract, and some depend on your loan.

The agent commission is the item people ask about most. Because no official source gives a percentage, Payotte does not either. What changed in 2024 and what you should ask each agent to put in writing is covered in the commission guide.

How does paying off a mortgage work at closing?

The balance you owe is paid from your sale proceeds, and you receive what is left. You do not have to guess the figure. Under 12 CFR 1026.36(c)(3), for a loan secured by a dwelling, the servicer must give you an accurate statement of the balance needed to pay the loan in full on a specified date. The statement must be sent within a reasonable time, and in no case more than seven business days after a written request from you or someone acting for you. The rule allows a longer reasonable time when a loan is in bankruptcy or foreclosure, is a reverse mortgage or shared appreciation mortgage, or after a natural disaster or similar circumstances.

The payoff is a good reason to ask early: it fixes the largest single deduction from your proceeds. The step-by-step version is in selling a house with a mortgage.

Can a prepayment penalty add to the bill?

Sometimes, on loans that include one. Under 12 CFR 1026.43(g), a covered mortgage may carry a prepayment penalty only if the rate cannot increase after closing, the loan is a qualified mortgage and it is not a higher-priced mortgage loan. The penalty cannot apply after the three-year period following closing. It cannot exceed 2 percent of the balance prepaid in the first two years, or 1 percent in the third year. Check your note or ask your servicer whether your loan has one.

How do selling costs affect the tax you owe?

Publication 523 treats selling expenses as the costs directly associated with selling your home. Its worksheet lists sales commissions, advertising fees, legal fees and loan charges the seller paid that normally fall to the buyer. You subtract them from the selling price, so they lower your gain.

For your main home, the IRS excludes up to $250,000 of gain, or $500,000 for a married couple filing jointly, if you owned and lived in the home for at least 24 months of the five years before the sale. Only gain above that limit is taxed. The IRS also says you cannot deduct a loss on the sale of your main home. A closing agent may report the sale on Form 1099-S. Details and the two-year look-back are in capital gains on a home sale.

A worked example

This example is hypothetical and uses round numbers only to show the arithmetic. Assume you sell your main home for $400,000, your agreed selling expenses (commission, advertising, legal fees) are $24,000, and your mortgage payoff is $180,000.

The payoff does not change your gain: it is a debt you repay, not a cost of selling. If your adjusted basis in the home were $250,000, your gain would be $126,000, which is below the $250,000 exclusion for a qualifying seller, so no federal tax would be due on it. Your own basis includes purchase price and improvements, so use Worksheet 1 in Publication 523.

Where states differ

Federal rules set how loans are paid off and how the gain is taxed. States and localities decide the transfer taxes, recording fees, who customarily pays for title insurance, whether an attorney handles the closing and what you must disclose. Use the state tables and each state’s page, for example the seller disclosure rules by state. To see what buyers pay in your state, try the closing costs calculator.