1. What is Home Sale Cost Basis?

The cost basis of a home is the original value of a property plus the cost of any improvements, minus any depreciation. It's used to determine capital gains when you sell the property.

2. How Does the Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( Purchase\ Price \) — Original purchase price of the home
• \( Improvements \) — Cost of capital improvements made to the property
• \( Depreciation \) — Total depreciation claimed on the property

Explanation: The cost basis represents your total investment in the property for tax purposes.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains tax liability when selling a property. A higher cost basis means lower taxable gain.

4. Using the Calculator

Tips: Enter all values in dollars. Include all capital improvements (like additions or renovations) but not routine maintenance. Depreciation should include any claimed on tax returns.

5. Frequently Asked Questions (FAQ)

Q1: What counts as an improvement?
A: Improvements that add value, prolong life, or adapt to new uses (e.g., new roof, addition, kitchen remodel). Routine maintenance doesn't count.

Q2: How do I find my depreciation amount?
A: Check your tax returns if you've claimed depreciation (typically for rental properties). Primary residences usually don't have depreciation.

Q3: Does cost basis include closing costs?
A: Yes, original purchase closing costs can be added to the basis, and selling costs can reduce the sales price.

Q4: How does this affect capital gains?
A: Capital gain = Sales price - Selling expenses - Cost basis. Higher cost basis means lower taxable gain.

Q5: Is there a difference for primary residence vs rental?
A: Yes, primary residences often qualify for capital gains exclusions ($250k single/$500k married), while rentals don't but may have more depreciation.