No, seller concessions are not tax deductible. For sellers, they are selling expenses that reduce the amount realized on the sale, which shrinks your capital gain rather than producing a deduction. For buyers, concessions generally reduce the cost basis of the home. The distinction matters most when your gain exceeds the Section 121 exclusion.
Key takeaways
- Sellers cannot write off concessions, but IRS Publication 523 treats them as selling expenses that reduce the amount realized, so a $30,000 concession cuts your taxable gain by $30,000.
- If your gain is fully sheltered by the Section 121 exclusion, concessions have no federal tax effect for you as the seller.
- Buyers subtract seller-paid concessions from their cost basis. Seller-paid points are the exception: the buyer may deduct them as mortgage interest under Publication 530 rules, but must still reduce basis by the same amount.
- Lender caps limit concessions: 3 to 9 percent on conventional loans depending on down payment, 6 percent on FHA, 4 percent on VA (as the VA defines concessions), and 2 percent on conventional investment property loans.
- On investment property there is no exclusion to hide behind. Concessions reduce amount realized on Form 4797, and depreciation recapture still applies.
What counts as a seller concession
A seller concession is anything of value the seller gives up at closing beyond delivering the house: paying the buyer's closing costs, funding a repair credit, covering prepaid taxes and insurance, or buying down the buyer's mortgage rate, whether permanently through discount points or temporarily through a 2-1 buydown. In soft markets and on higher-priced homes, these credits routinely run into five figures, which is why the tax treatment deserves more than a shrug.
The seller's side: a reduction in amount realized, not a deduction
There is no line on Schedule A or anywhere else for "concessions paid to buyer." Instead, IRS Publication 523 has you compute gain by starting with the selling price and subtracting selling expenses to arrive at the amount realized. Selling expenses include sales commissions, legal fees, and costs you paid on the buyer's behalf, including seller-paid points. Gain is the amount realized minus your adjusted basis.
Run the numbers on a sale that actually clears the exclusion. Say you bought a home for $700,000, sold it for $1.5 million, paid a $75,000 commission, and credited the buyer $30,000 at closing:
- Amount realized: $1,500,000 − $75,000 − $30,000 = $1,395,000
- Gain: $1,395,000 − $700,000 = $695,000
The Section 121 exclusion shelters $250,000 (single) / $500,000 (married filing jointly) of gain on a primary residence owned and used 2 of the last 5 years (IRS Publication 523). A married couple in this example still has $195,000 of taxable long-term gain. The $30,000 concession reduced that taxable gain dollar for dollar, worth up to $7,140 at the top 23.8 percent all-in federal rate on long-term gains. If instead the couple's total gain had been under $500,000, the concession would have changed nothing on their return, because the exclusion was already absorbing all of it.
One point sellers often miss: for your taxes, a $30,000 concession and a $30,000 price cut land in the same place. Either way your amount realized drops by $30,000. Concessions exist for the buyer's benefit, letting them finance costs they would otherwise pay in cash, not to create a tax angle for you. State taxes are their own problem, especially if the property sits in a state where you no longer live; see our guide to capital gains tax on property sold out of state.
Two things that are never deductible and never reduce amount realized: your own moving costs and any losses on a personal residence. A loss on the sale of your main home is nondeductible, concessions or not.
The buyer's side: concessions reduce your cost basis
If you are the buyer, seller concessions are not income to you, but they are not free basis either. Your cost basis starts with the purchase price plus the settlement costs you actually paid, such as title insurance, legal fees, recording fees, and transfer taxes. Costs the seller paid for you were never your money, so they do not go into your basis.
Seller-paid points get special handling under IRS Publication 530. The buyer treats seller-paid points as if the buyer had paid them, which means you can deduct them as home mortgage interest in the year of purchase if the standard tests are met: the loan is secured by your main home, paying points is an established practice in your area, the amount is not excessive for the market, the points are computed as a percentage of the loan and clearly shown on the settlement statement, and the cash you brought to closing at least equals the points charged. Miss a test and the points are deducted over the life of the loan instead. Either way, Publication 530 requires you to reduce the basis of the home by the amount of the seller-paid points. That lower basis means slightly more gain when you eventually sell, though for most primary residences the Section 121 exclusion absorbs it.
For high earners who itemize, that year-one interest deduction is real money the seller is effectively handing you, one reason negotiating a rate buydown often beats an equivalent price reduction as a buyer.
Seller vs. buyer at a glance
| Question | Seller | Buyer |
|---|---|---|
| Deductible? | No. Reduces amount realized under Pub 523 | Generally no. Exception: seller-paid points may be deductible as mortgage interest under Pub 530 |
| Effect on gain or basis | Lowers taxable gain dollar for dollar | Lowers cost basis (including by any seller-paid points, even if deducted) |
| When it matters | Only when gain exceeds the Section 121 exclusion | At purchase (points deduction) and again at eventual sale (lower basis) |
| Where it shows up | Form 8949 and Schedule D, if the sale is reportable | Schedule A (points); basis records for the future sale |
How much can a seller concede? Caps by loan type
These are lender and agency limits, not tax rules, but they define how large a concession can get. Amounts over the cap are treated as price reductions for underwriting.
| Loan type | Maximum concession |
|---|---|
| Conventional (Fannie Mae/Freddie Mac), down payment under 10% | 3% |
| Conventional, down payment 10% to 25% | 6% |
| Conventional, down payment over 25% | 9% |
| Conventional, investment property | 2% (any down payment) |
| FHA | 6% of the sales price |
| VA | 4% of the home's value, counting items like prepaid taxes and insurance, the funding fee, and payoff of the buyer's debts; customary closing costs the seller pays do not count toward the 4% |
| Cash purchase | No cap; whatever the contract says |
Investment property plays by different rules
Sell a rental and there is no Section 121 exclusion softening the math. Concessions still reduce your amount realized, and the sale is reported on Form 4797 with gain figured under IRS Publication 544 (Publication 527 covers the property while you own it). Depreciation you claimed comes back as unrecaptured Section 1250 gain, taxed at a maximum 25 percent, and concessions reduce total gain rather than erasing recapture specifically. Because every dollar of concession offsets gain that would otherwise be fully taxable, concessions are worth genuinely more to a rental seller than to a homeowner whose gain was excludable anyway. Note the tight 2 percent conventional cap on the buyer's side of investment deals. If you hold multiple properties, this interacts with the rest of your real estate strategy, including 1031 exchanges, where concessions reduce the amount realized on the relinquished property.
Reporting it correctly
Keep the Closing Disclosure (or ALTA settlement statement). It is the document that proves what you conceded and what each side paid. As a seller, you only report the sale on Form 8949 and Schedule D if you received a Form 1099-S or your gain is not fully excluded. Watch the 1099-S: it typically shows gross proceeds, so it is on you to subtract selling expenses, including concessions, when computing the amount realized. As a buyer, file the disclosure with your permanent records, because your basis math will matter years from now.
The bottom line
Stop looking for the deduction; it does not exist. Concessions lower the seller's amount realized and the buyer's basis, and the real planning question is whether your gain clears the Section 121 exclusion, because that is when the mechanics start moving actual dollars. On a seven-figure sale, the interaction between concessions, commissions, basis improvements, and the exclusion is exactly the kind of thing worth an hour of a CPA's time before you sign the purchase agreement, not after. This article is general information, not tax advice; for more on keeping gains of every kind, see our tax strategy hub.
Frequently asked questions
Are seller concessions tax deductible for the seller?
No, sellers cannot deduct concessions. IRS Publication 523 treats them as selling expenses that reduce the amount realized on the sale, so a $30,000 concession cuts your taxable gain by $30,000 rather than producing a deduction. If your gain is fully sheltered by the Section 121 exclusion, the concession has no federal tax effect for you as the seller.
How do seller concessions affect a buyer's taxes?
For buyers, concessions generally reduce the cost basis of the home rather than being deductible, since costs the seller paid were never the buyer's money. The exception is seller-paid points, which the buyer may deduct as mortgage interest under Publication 530 if the tests are met, but must still reduce basis by the same amount.
When do seller concessions actually matter for taxes?
Concessions matter most for a seller when the gain exceeds the Section 121 exclusion of $250,000 single or $500,000 married filing jointly. Below that, the exclusion already absorbs the gain and the concession changes nothing. On investment property there is no exclusion, so every dollar of concession offsets fully taxable gain, making it worth more to a rental seller.
How large a seller concession does each loan type allow?
Lender caps vary: conventional loans allow 3% to 9% depending on down payment, FHA allows 6% of the sales price, VA allows 4% as it defines concessions, and conventional investment property is capped at 2%. Cash purchases have no cap. These are underwriting limits, not tax rules, and amounts over the cap are treated as price reductions.