Bringing musicians to my open house: Can this reduce my capital gains tax?

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Question

My husband and I have listed our home for sale. It’s a luxury home located in an affluent community and we have over $500,000 of equity. Thus, even though we qualify for the $500,00 home sale tax exclusion, we could be stuck with having to pay substantial capital gains taxes on the sale.

Our real estate agent is holding an open house. She is providing canapes and other snacks. But we think a good way to attract the type of high-end buyers we’re looking for is to hire musicians to play during the open house. If we pay for this, is the expense tax deductible?

Answer

The general rule is that advertising-related expenses homeowners incur to sell their homes are deductible home sale expenses. Such expenses may be subtracted from the amount received from the sale to determine the amount of taxable profit, if any.

Arguably, hiring musicians to play during an open house should constitute a home-sale advertising expense. It serves the same purpose as any other advertising — attracting potential buyers to purchase a product.

You don’t want to go overboard here, however. The IRS has a general rule that lavish or unreasonable expenses are not deductible. So you probably don’t want to hire a symphony orchestra or college marching band. But hiring a jazz combo or similar small group of musicians to serenade potential buyers at your open house should be deductible.

If, for example, you spend $1,000 for such musicians, you can add the amount to your other sales expenses such as real estate broker's commission, closing costs, and other fees and costs you must pay to sell your home. The total amount may then be deducted from the amount you realize (receive) from the sale.

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