What is the adjusted basis of my home?
The adjusted basis is simply the cost of your home adjusted for tax purposes by improvements you've made or deductions you've taken.
For example, if the original cost of the home was $100,000 and you added a $5,000 patio, your adjusted basis becomes $105,000. If you then took an $8,000 casualty loss deduction, your adjusted basis becomes $97,000.
Here's how you calculate the adjusted basis on a home:
Start with the purchase price of your home (as described above)
- Or, if you filed Form 2119 when you originally acquired your old home to postpone gain on the sale of a previous home (back in 1997 or earlier), use the adjusted basis of the new home calculated on your Form 2119. (See Postponed Gains Under the Old "Rollover" Rules section.)
To that starting basis add:
- The cost of any improvements that added value to your home, prolonged its useful life, or gave it a new or different use
- Any special tax assessments you paid
- Amounts spent after a casualty (a disaster such as a hurricane or tornado) to restore damaged property
From that upwardly adjusted basis subtract:
- Certain settlement fees or closing costs
- Depreciation allowed for any business use portion of your home
- Residential energy credits claimed for capital improvements
- Payments received for easements or right-of-ways
- Insurance reimbursements for casualty losses
- Casualty losses (from accidents and natural disasters) that you deducted on your tax return
- Adoption credits or nontaxable adoption assistance payments for improvements added to the basis of your home
- First-time homebuyer credit
- Energy conservation subsidies excluded from your gross income
- Any mortgage debt on your principal residence that was discharged after 2006 but before 2014, if you excluded this amount from your gross income
The result of all these calculations is the adjusted basis that you will subtract from the selling price to determine your gain or loss. This adjusted basis is what's considered to be your cost of the home for tax purposes.
Basis when you inherit a home
If you inherited your home from your spouse in any year except 2010 and you lived in a community property state—Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin—your basis will generally be the fair market value of the home at the time of your spouse's death.
If you lived somewhere other than a community property state, your basis for the inherited portion of the home in any year except 2010 will be the fair market value at your spouse's death multiplied by the percentage of the home your spouse owned. If your spouse solely owned the home, for example, the entire basis would be "stepped up" to date-of-death value. If you and your spouse jointly owned the home, then half of the basis would rise to date-of-death value.
If you inherited your home from someone other than your spouse in any year except 2010, your basis will generally be the fair market value of the home at the time the previous owner died. If the person you inherited the home from died in 2010, special rules apply. Your basis generally is the same as the person you inherited the property from. However, the executor has the option to increase the basis of property passing to a non-spouse by $1.3 million and property passing to a spouse by $3 million. To find out the exact basis of any property you inherit, check with the estate’s executor.
Divorce and tax basis
If you received your home from your former spouse as part of a divorce after July 18, 1984, your tax basis generally will be the same as your basis as a couple at the time of the divorce. So if your former spouse was the sole owner of the home, his or her basis becomes your basis. If the place was jointly owned, you now claim the full basis.
If you divorced before July 19, 1984, your basis will generally be the fair market value at the time you received it.