1. What is Home Cost Basis?

The cost basis of a home is the original value of a property for tax purposes, adjusted for various factors. It's used to calculate capital gains when the property is sold. The basic formula is: CB = PP + Imp - Dep + Fees.

2. How Does the Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( CB \) — Cost Basis ($)
• \( PP \) — Purchase Price ($)
• \( Imp \) — Improvements ($)
• \( Dep \) — Depreciation ($)
• \( Fees \) — Additional Fees ($)

Explanation: The equation calculates the adjusted cost basis by adding purchase price and improvements, subtracting depreciation, and adding any applicable fees.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains tax liability when selling a property. It helps minimize tax burden and ensures proper financial reporting.

4. Using the Calculator

Tips: Enter all values in dollars. Purchase price, improvements, depreciation, and fees must be non-negative numbers. The calculator will compute your home's cost basis.

5. Frequently Asked Questions (FAQ)

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

Q2: How is depreciation calculated for a home?
A: Depreciation is typically calculated based on the property's useful life (27.5 years for residential rental properties) and applies only to investment properties, not primary residences.

Q3: What fees can be included in cost basis?
A: Legal fees, title insurance, recording fees, and other closing costs associated with purchasing the property can be included in the cost basis calculation.

Q4: Does cost basis include land value?
A: Yes, the purchase price includes both the structure and land value. However, only the building portion can be depreciated for investment properties.

Q5: How often should I update my cost basis?
A: Update your cost basis whenever you make significant improvements to the property. Keep detailed records of all improvements and expenses for tax purposes.