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Do I Have to Pay Tax on the Sale of my Home? 
by kmhagen June 17, 2005

Adjusted basis of your home

Next you need to determine the adjusted basis of your home. Your original basis in your home depends on how you acquired it. If you purchased your home, the basis is its cost. If you built it, the basis is the cost of construction. If you acquired your home by inheritance or gift, the basis is either the fair market value of the home when you got it, or the adjusted basis for the person from whom you received the home. While you owned the home, you may have made additions or improvements that are treated as increases in your basis, or you may have casualty losses, depreciation, if you used part of your home for business purposes, or other items that decrease the basis. These increases and decreases are added to or subtracted from your original basis in arriving at your adjusted basis.

Original cost basis

If you bought your home, your original basis is the amount you paid for the home, including the cash down payment and the principal amount of any mortgage, plus certain settlement costs, including the following:

  • Fees for title abstract
  • Charges for installing utilities, such as electricity and gas
  • Legal fees for title search and for preparing the deed
  • Recording fees
  • Survey fees
  • Transfer taxes
  • Owner’s title insurance

If you as the buyer agreed to pay amounts owed by the seller, for example for back taxes or interest, sales commission, or charges for improvements or repairs, you can also include these in your basis.

If you had your house built on land that you own, your basis in the home is the cost of the land plus the costs to build the house, including:

  • Labor and materials
  • Amounts paid to a contractor
  • Architect’s fees
  • Building permit
  • Utility meter and connection charges

If you built the house yourself, your basis includes all costs to complete it, except the value of your own labor or any labor you did not have to pay for.

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