1. What is Home Cost Basis?

The Home Cost Basis represents the total investment in a property for tax purposes. It includes the original purchase price plus any capital improvements, minus accumulated depreciation. This value is crucial for calculating capital gains when selling the property.

2. How Does the Calculator Work?

The calculator uses the standard cost basis formula:

Where:

• Purchase Price — Original cost to acquire the property
• Improvements — Capital improvements that add value or extend useful life
• Depreciation — Accumulated depreciation claimed on the property

Explanation: The formula calculates the adjusted basis of your home, which is essential for determining taxable gain or loss upon sale.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is critical for tax reporting when selling a property. It helps determine capital gains tax liability and ensures compliance with IRS regulations for investment properties and rental real estate.

4. Using the Calculator

Tips: Enter all amounts in USD. Include only capital improvements (not routine maintenance) and use the total accumulated depreciation from tax records. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as a capital improvement?
A: Capital improvements include major renovations like room additions, roof replacement, kitchen remodel, or new HVAC system that add value to the property.

Q2: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years using the straight-line method on the building value (excluding land).

Q3: Does cost basis include closing costs?
A: Yes, certain closing costs like title insurance, legal fees, and transfer taxes can be added to the purchase price when calculating cost basis.

Q4: How does cost basis affect capital gains?
A: Capital gain = Sale price - Selling expenses - Cost basis. A higher cost basis results in lower taxable capital gains.

Q5: Is this calculator for primary residences?
A: This calculator applies to all real estate properties, but primary residences may qualify for capital gains exclusions up to $250,000 ($500,000 married).