1. What is Basis Calculation for Home Sale?

Basis calculation determines the original value of a property for tax purposes when selling a home. It includes the purchase price plus improvements minus depreciation, and is used to calculate capital gains tax liability.

2. How Does the Calculator Work?

The calculator uses the basis formula:

Where:

• \( PP \) — Purchase Price ($)
• \( Imp \) — Improvements ($)
• \( Dep \) — Depreciation ($)

Explanation: The basis represents your investment in the property and is subtracted from the sale price to determine taxable gain.

3. Importance of Basis Calculation

Details: Accurate basis calculation is crucial for determining capital gains tax when selling a property. A higher basis results in lower taxable gain, reducing your tax liability.

4. Using the Calculator

Tips: Enter the original purchase price, total cost of improvements made to the property, and any depreciation taken. All values must be in dollars and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as improvements?
A: Improvements are permanent additions that increase property value, such as renovations, additions, or major upgrades. Routine maintenance and repairs do not qualify.

Q2: How is depreciation calculated?
A: Depreciation is typically calculated for rental properties over 27.5 years for residential or 39 years for commercial properties using the straight-line method.

Q3: Does basis include closing costs?
A: Yes, original purchase closing costs can be added to the basis, and selling costs can be subtracted from the sale proceeds.

Q4: How does basis affect capital gains tax?
A: Sale price minus basis equals capital gain. Higher basis means lower taxable gain, which reduces your capital gains tax liability.

Q5: Are there special rules for primary residences?
A: Yes, for primary residences, you may qualify for capital gains exclusion of up to $250,000 ($500,000 for married couples) if certain ownership and use tests are met.