Determine Your Cost Basis When Selling Your Home

Buying a house is an important step in your life. Typically you buy a house and then make it your home.  The specific details were chosen by you and the changes and improvements which were made over the years have made this home uniquely yours.  Selling a home that you have lived in for many years can be an emotional and exhausting adventure.

It is difficult to remain unaffected by this task. And aside from the emotional aspect, the financial aspect can be equally significant.  Hopefully you have sold your home for more than you paid for it. And, if like many who are selling after fifteen to thirty years, the likelihood is that you will have a capital gain from the sale of your home.

In a post written by Dan last week, the tax benefits of selling your home was discussed. TIME TO SELL?  And as he indicated, we are in the early stages of getting our home ready to sell. With this impending sale, the task of determining the proper cost basis is upon us with the importance of lowering the tax implications.

Who can qualify for this exclusion?

You may qualify to exclude up to $250,000 of that gain from your income or up to $500,000 of that gain if you file a joint return with your spouse.  And in addition to this exclusion, the cost basis and the improvements made to your home need to be accounted for to assure that you receive the tax benefits. Hopefully you have kept track of all the improvements, additions and expenses over the years.

How do you determine the cost basis?  And what costs are allowed to be included in this calculation?

The IRS has specific guidelines and worksheets to assist you.  Publication 523- Selling your Home provides insights to determine your tax implications for your filing.

The following are some of the improvements that can be included to your cost basis:

Additions: Bedroom, Bathroom, Deck, Garage, Porch, Patio

Lawn & Grounds:  Landscaping, Driveway, Walkway, Fence, Retaining Wall, Swimming Pool

Systems:  Heating system, Central air conditioning, Furnace, Duct Work, Central humidifier, Central vacuum, Air/water filtration systems, Wiring, Security system, Lawn sprinkler system

Exterior:  Storm windows/doors, New roof, New siding, Satellite dish

Plumbing:  Septic system, Water heater, Soft water system, Filtration system

Insulation:  Attic, Walls, Floors, Pipes and duct work

Interior:  Built in Appliances, Kitchen modernization, Flooring, Wall to Wall carpeting, Fireplace

It may be helpful to begin to itemize all of these improvements before you decide to sell your home.  These improvements that were completed over the years should be included in your cost basis before you file your tax returns.

If you would like to view the IRS Guidelines click here:  IRS Guidelines  

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The foregoing content reflects the opinions of Crimmins Wealth Management and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. All investing involves risk, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful.

About Maureen Crimmins

Maureen Crimmins is co-founder of Crimmins Wealth Management and a fee-only independent financial advisor. Have a financial question? ASK MAUREEN


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