How To Calculate The Cost Basis Of Your Home

When you decide to sell your home, you need to know what the cost basis of the home is, because it needs to be noted on your income tax return for the year you sell your home.

When you are considering selling your home, taxes are probably not the first thing on your mind. Taxes are involved in some way, whether you gain or lose money from a real estate transaction. Enter the term 'cost basis.'

In the United States, cost basis is a tax law term. The original price you paid for your home is what the basis is considered. Factors such as a home's appreciation or depreciation is where the cost portion of the calculation is taken into account and also adjusted for.

You, as a taxpayer, will end up paying taxes on a capital gain when you sell your property and your home has appreciated in value. Subtracting the money paid for the property's original value or basis, this is equal to the amount of money you gained on the sale. You, as a taxpayer, will end up saving on taxes from any loss you may have suffered if, when you sell your property, your home has depreciated in value. With the property's original basis factored in, this is again equal to the amount of money you lost on the sale.

It does not matter if the property is encumbered by a debt in this equation. The home's original cost, plus or minus any profit or loss realized at its sale, is all that matters. Any costs associated with the selling of your home can also be subtracted. The calculation has the possibility of being a little confusing, even if the figures seem relatively straightforward, especially if you don't have the strongest math skills. Contacting a tax specialist is the best way to ensure you understand your tax obligations.

You may qualify for a one time exemption on any gains when you sell your home, so again, consult with a CPA or tax professional for details on how your particular tax situation needs to be handled when you sell your home.

Source:longislandrealestate4buyers.com