Updated August 16, 2026
Not as a deduction against your ordinary income, but it does reduce your taxable gain — which for most sellers amounts to the same relief in a different place. Selling costs, including the brokerage commission, escrow and title fees, and transfer taxes, are generally treated as reducing the amount realized on the sale. Less amount realized means less gain, and less gain means less tax. It is not an expense you write off against rental income in the year of sale; it is subtracted in computing what the sale produced. The practical effect on a large Los Angeles multifamily transaction is meaningful, and it belongs in the net proceeds model alongside everything else.
The gain on a sale is, in simplified terms, the amount realized minus the adjusted basis.
Amount realized is the sale price reduced by the costs of the sale — commission, escrow and title charges, transfer taxes including Measure ULA in the City of Los Angeles, and similar transaction costs.
Adjusted basis is what you paid, increased by capital improvements over the years and decreased by depreciation taken.
So a $6,000,000 sale with $400,000 of selling costs produces an amount realized of $5,600,000, and the gain is computed from there. The commission has reduced the gain dollar for dollar.
On a building held for decades, the basis is typically very low — original purchase price, reduced by decades of depreciation. The gain is therefore very large, and it is taxed in layers: depreciation recapture at its own rate, long-term capital gain, the net investment income tax where applicable, and California's treatment of the gain as ordinary income at state rates.
Against that stack, a dollar of selling cost is not a trivial saving. It reduces the top layer of a large gain. It is not a reason to spend more on the sale, obviously — but it does mean the after-tax cost of a properly run marketing process is materially lower than the headline commission figure, which is worth knowing when a seller is weighing how to sell.
Transfer taxes. County and city documentary transfer tax and Measure ULA where it applies. On a large LA City sale, ULA at 4% or 5.5% of gross price is by far the biggest single item in this category.
Escrow, title, and recording fees.
Legal and accounting fees attributable to the sale. Treatment can vary with the nature of the service; your CPA should allocate these.
Capital improvements over the hold period. These increase basis rather than reducing amount realized, but they reduce the gain the same way. This is where good records pay off — improvements made twenty years ago still count if you can document them, and sellers routinely fail to capture them because the invoices are gone.
Costs of preparing the property for sale. The line between a deductible repair and a capitalized improvement matters here, and it is a CPA question rather than a broker question.
Your regular operating expenses. Ordinary repairs, management, utilities, and insurance are deducted against rental income in the normal course, not against the sale.
Loan payoff. Repaying principal is not a cost of sale and does not reduce gain. Sellers conflate the check written at closing with a deductible expense; it is neither.
Prepayment penalties. Generally treated as interest rather than as a selling cost, with its own treatment.
The withholding. California's 3 1/3% real estate withholding is a prepayment of tax, not a cost of sale.
Treat every cost of selling as a reduction of gain rather than as a deduction, and make sure your CPA has the complete list — commission, escrow and title, transfer taxes including Measure ULA, and the sale-related professional fees. Then, separately, dig out your capital improvement records for the entire hold period, because increasing basis has exactly the same effect and it is the piece sellers most often leave on the table. On a long-held LA building, reconstructing twenty years of improvements is often worth more than any other tax step available at the time of sale.
Does the commission reduce my Measure ULA?
No. ULA is calculated on the gross consideration for the transfer. Costs of sale reduce your taxable gain for income tax purposes; they do not reduce the base on which the transfer tax is computed.
Can I deduct selling costs if I do a 1031 exchange?
In an exchange the gain is deferred rather than recognized, so the treatment of selling costs works through the exchange calculation rather than as a current deduction. Ordinary and customary transaction costs can generally be paid from exchange proceeds without creating boot — confirm the specific list with your intermediary and CPA.
What if I cannot find my capital improvement records?
Reconstruct what you can from permits, contractor records, bank statements, and old tax returns showing depreciation schedules. Depreciation schedules are frequently the best surviving record of what was capitalized, and your CPA may already have decades of them on file.
Michael Sterman is Senior Managing Director Investments at Marcus & Millichap.
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