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During the sale of a rental property some expenses such as sales commissions, legal fees, and bank fees are generally incurred.  While I have seen some documentation suggesting that these can be applied against the selling price to reduce the capital gains, I am curious whether the option to instead apply them against the annual income from the property also exists?  These were, after all, expenses incurred as a result of running the rental property business.  I am only looking for information on whether there is a strict requirement to apply these costs against either the sales price or against the rental income?  Is there a law that directs where these must be applied, or is the choice optional?

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Costs specifically associated with the selling of the property must be deducted from net proceeds of the sale of the property, not operating expenses. In other words, you can't take the deductions against fully taxed rental income, only against 50% taxed capital gains.

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