1. What Is Cost Basis On Home?

Cost basis represents the total amount invested in a property, including purchase price and improvements, minus any depreciation taken. It's used to determine capital gains when selling the property.

2. How Does The Calculator Work?

The calculator uses the cost basis formula:

Where:

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

Explanation: This formula calculates the adjusted basis of your home, which is essential for determining taxable gain when you sell the property.

3. Importance Of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for tax purposes when selling a property, as it determines the capital gains tax liability and helps maximize tax savings through proper documentation of improvements.

4. Using The Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as home improvements?
A: Capital improvements that add value to the home, prolong its life, or adapt it to new uses (e.g., room additions, roof replacement, kitchen remodel).

Q2: What doesn't count as improvements?
A: Routine repairs and maintenance (painting, fixing leaks) that don't add substantial value or prolong the home's life.

Q3: How does depreciation affect cost basis?
A: Depreciation reduces your cost basis, which may increase your taxable gain when you sell the property.

Q4: When should I calculate cost basis?
A: When selling a rental property, business property, or when you've taken depreciation deductions on your home office.

Q5: Are there different rules for primary residences?
A: Yes, primary residences may qualify for capital gains exclusions ($250,000 single, $500,000 married) if ownership and use tests are met.