If you simply decide to have your home appraised or inspected, the costs involved are not tax deductible. On the other hand, if you have your home appraised as part of the process of selling it, you can find the appraisal fee tax deductible from any capital gains on the house. If you have a rental property, or your business otherwise owns a property and you have it appraised for business purposes, that can also be tax deductible.
Not all home appraisal fees are tax deductible. You can deduct appraisal fees paid as part of selling your house from your capital gains. You can also deduct business-related property appraisal costs.
Home Appraisals and Home Inspections
Getting a home appraisal means hiring a professional expert to come up with an estimate of how much the property is worth. The home appraiser will look at the conditions and amenities of your house, including things like how recently the kitchen was remodeled, the condition of the roof and whether or not you have a swimming pool, as well as the prices of comparable homes nearby that recently sold.
An appraiser is typically licensed by the state where your home is located and is required to give an unbiased assessment of the home's value. Appraisals are often required by mortgage lenders when a property is being bought or refinanced to make sure that the mortgage amount isn't more than the actual value of the house, which would leave the lender unable to recoup the loan amount even after foreclosing on the house. An appraisal is separate from a tax assessment, which is a process for your local government to determine the value of your home in order charge the right amount of property tax.
A home inspection is a slightly different process from an appraisal that's more closely focused on finding potential problems with a house, such as plumbing issues, electrical faults or pest infestations. Getting a home inspection is also a good idea when buying a house, and it may be required by a lender. A home inspector will point out issues with the house but will not attempt to make an estimate of its value.
Capital Gains and Appraisal Fees
When you sell your home, you are required to pay capital gains tax on the increase in value from when you bought it. Often if the home was your primary residence, you can exclude up to $250,000 in gains or up to $500,000 if you are married and filing income tax jointly. The rate for capital gains tax is typically 15 percent, although some taxpayers pay 20 percent or 0 percent depending on income.
You can also deduct from the gain the costs of improvements you made to the property and costs related to selling the house. Those costs can potentially include the costs of inspections and appraisals. Talk to a tax expert, such as an accountant or lawyer, if you're not sure what costs can offset your capital gain.
Rental Properties and Appraisal Fees
If you own or buy a rental property, you may be able to deduct appraisal fees and other legal fees, such as title search expenses or paying a lawyer to assist with the closing, from your rental income. Make sure to keep documentation of why you got the appraisal and how much it cost for when you fill out the rental property tax deduction worksheet on your tax return or in your tax preparation software.
You can also claim a home inspection as tax deductible on a rental property if it's related to your property rental business.
If you have property that you use partly for personal purposes and partly for business purposes, such as a home where you rent an upstairs apartment, you will likely need to distribute the costs of an appraisal between the two uses. Talk to an accountant if you're not sure how to do this.
- Investopedia: What You Should Know About Home Appraisals
- The New York Times: What to Expect From a Home Inspection
- IRS: Topic No. 701 Sale of Your Home
- IRS: Publication 523 (2018), Selling Your Home
- IRS: Rental Expenses
- Anderson Advisors: Rental Property Tax Deductions for Real Estate Investors
- Watson CPA Group: Rental Property Worksheet
- What Does a House Appraisal Entail?
- Tax Consequences of Converting a Rental Property Back Into a Dwelling
- What Is Deductible When Selling Land?
- Tax Write Offs for Moving
- What Can You Write Off on Your Investment House When You Sell?
- Reappraisal vs. Reassessment
- What Expenses From a Natural Disaster Are Tax-Deductible?
- Home Appraisal Techniques