Selling costs reduce your amount realized
Capital gain on a property sale equals your amount realized minus your adjusted basis. The amount realized is not simply the selling price — it is the selling price minus selling expenses. Every dollar you spend to complete the sale directly reduces your taxable gain dollar-for-dollar.
Common selling expenses that reduce your amount realized include: real estate agent commissions (typically 5–6% of the sale price), title insurance and settlement fees paid by the seller, attorney fees, transfer taxes, deed preparation costs, and staging or repair costs required by the purchase agreement. These are not deductible operating expenses — they are treated as reductions in the sale price for purposes of computing your gain.
What does not reduce the gain
Mortgage payoff is not a selling cost — paying off your loan changes what you keep from the proceeds but does not change your taxable gain. Similarly, moving costs are personal and do not reduce your gain. Repairs done to improve the property before the sale may or may not qualify depending on timing and nature; a tax professional can clarify whether specific pre-sale expenses are selling costs or basis adjustments.
Note that prepaid property taxes or rent proration at settlement are typically not selling costs that reduce the gain — they represent adjustments between buyer and seller for the period of ownership.
A quick example
Selling price: $500,000. Agent commission: $30,000. Title and settlement fees: $3,500. Transfer taxes: $1,500. Total selling costs: $35,000. Amount realized: $500,000 − $35,000 = $465,000. If adjusted basis is $300,000, taxable gain = $465,000 − $300,000 = $165,000 — not $200,000. Keeping careful records of selling costs can meaningfully reduce your tax bill.
Frequently asked questions
Can I deduct agent commissions when selling a rental?
Not as an operating deduction — commissions reduce your amount realized, which lowers your taxable gain. The effect is the same economically: they reduce your tax bill.
What selling costs reduce capital gains?
Agent commissions, title fees, closing attorney fees, transfer taxes, deed costs, and other expenses directly required to complete the sale. They reduce your amount realized, which lowers your gain.
Do selling costs also reduce depreciation recapture?
Selling costs reduce total gain but do not specifically reduce the recapture portion — the recapture is calculated first on total depreciation claimed, then the remainder is capital gain.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.