Tax Deductibility of Home Staging costs
According to current IRS guidelines, home staging qualifies as an advertising expense for homeowners selling their primary or secondary homes. Rob Unger, a certified public accountant with Judelson, Giordano & Siegel, CPA, P.C. in Middletown explains how this works.
Since a home stager prepares your home for potential homebuyers, the IRS considers the service as an advertising expense, as long as the home stager has been hired for the sole purpose of selling your home. The costs of staging are subtracted from the proceeds of the sale of the home and decrease the total realized profit. In summary, the IRS’ position is that staging costs are a legitimate selling expense for both primary and secondary homes and are therefore tax deductible. However, it is important to note that if a house is staged and then taken off the market, the staging expenses are not tax deductible.
Home staging is typically what happens after a homeowner has cleaned, painted and made minor repairs. The basic repairs, maintenance and upkeep of your primary home do not qualify as being tax deductible, even if recommended by a home stager. In general, the fees paid to a professional home stager to dress up a home, prepare it for sale and ultimately attract buyers, are tax deductible.
The home staging costs incurred to sell a home can reduce the gain on the sale of a home in two different ways. First, as mentioned earlier, most home staging costs qualify as advertising expenses. This includes the fee paid to the professional home stager to dress up the home by renting and placing furniture in the home and adding various decorative items such as artwork, plants, table settings and home decor. Once the property is sold, the fee paid to the home stager is deducted from the proceeds of the sale as an expense of sale, thus reducing the profit realized.
Second, there are certain home improvement costs that may not qualify as an advertising expense, but will still reduce the profit from the sale of a home. These are incurred costs that go beyond the simple decoration of a home and entail substantial home improvements such as installing a new porch or patio, adding a new kitchen or bathroom, adding a fireplace, or landscaping. The costs of these home improvements are not subtracted from the proceeds of the sale of the home, but are instead added to the cost basis of the home. The larger your basis is in the home, the lower the profit will be upon the sale of the home, thus the lower the gain will be on the sale of the home.
When in doubt, remember that the IRS offers a deduction strictly for the cost of home staging when it is an advertising expense. It cannot be applied to personal renovations for the homeowner’s benefit.
Q & A
Question from a Realtor:
Some homeowners do not maintain the “basic upkeep” of their home. As a real estate professional, we are often asked what should be done to get a home ready prior to going on the market. Some homeowners do not realize the condition of their home and for example, have not painted the interior or exterior (i.e. a deck) in over 10 years. A fresh coat of paint could make a substantial difference in the value of their home. Based on the recommendation of a Realtor or a stager, is there any way the home owner is able to perform this ‘basic upkeep’ and still use it as a tax write off? – Patricia Sassi, RE Associate Broker, William Raveis, Baer & McIntosh, Warwick
Answer by Rob Unger:
If a home is used as your personal residence, there are no tax benefits or deductions for making repairs. However, home improvements do provide tax benefits. It is important to understand the difference between a home repair and a home improvement. Home repairs keep a home in good condition but do not make it substantially better than it was before. Examples of repairs include repainting a home, fixing leaks, replacing a broken window, patching a leaky roof and fixing floors. A home improvement makes a property substantially more valuable than it was before the improvement. Examples of improvements are installing a new roof, adding a deck or patio and installing a new heating or air conditioning system. Only home improvements are added to the cost basis of a home.
Question from an investor:
What if a home is temporarily off the market? During low traffic times (holidays, etc.) I may take a home off the market so I don’t accumulate days on market – then re-list it a month or two later. Is staging still deductible in that scenario? –Mary Heed, Haven Homes
Answer by Rob Unger:
First, the article is really written from the perspective of an individual homeowner and not a business. In Mary’s case, since she is in the business of flipping homes, different rules apply. Since she is actively involved in the business, and trying to get the most from the sale of the property, the timing of her listing the house and then temporarily taking it off the market does not affect the deductibility for her.
According to Realtor Valerie Moldow of Better Homes and Gardens Rand Realty in Nyack, “Most sellers do not realize that homes sell faster with staging, therefore saving them money in the long run. They try to make it dollar for dollar. In other words, they look at $3K-$5K for staging as something they need to make back. When in reality the staging creates competition and higher return in a shorter amount of time.”
From a stager’s perspective (that’s me!), my best advice is to start preparing your home for sale early. A pre-listing consult is affordable and helps avoid costly mistakes. Even if you are not selling right away, it puts you in the right direction and allows you to enjoy your home while you are still living in it.
Levels of staging vary from house to house with the consultation covering everything from editing, rearranging, cleaning, repair and cost-effective updates to refresh the home. If the stager recommends a few decorative accessories to dress up the home and the homeowner buys them, it is not tax deductible as the homeowner can move these items with them. If these items are provided by the stager as part of setting the stage of the home along with rental furniture in the case of empty rooms, that is part of the staging service and is tax deductible.
Time and time again I hear this from my staging clients, “We should have been living like this all along”. The cost of staging is less than the first price reduction but the cost of loving your home while you are living in it is priceless.
For more information, reference IRS Publication #523 on staging. A special thank you to Rob Unger for sharing this valuable information.