If you received your home as a gift, your basis depends on the donor’s adjusted basis in the home at the time of the gift:
If the donor’s adjusted basis was more than the fair market value, your basis is the donor’s adjusted basis, except if by using that basis your subsequent sale of the home results in a loss. In this case, you would use the fair market value at the time of the gift, and then if your sale results in a gain, you do not have to report either a gain or a loss.
If you received the home as a gift before 1977, and the donor’s adjusted basis was equal to or less than the fair market value at that time, your basis is the lesser of:
The donor’s adjusted basis plus any federal gift tax paid, or
The fair market value at the time of the gift.
If you received the home after 1976, and the donor’s adjusted basis was equal to or less than the fair market value, you basis is the same as the donor’s basis plus the portion of the federal gift tax that corresponds to the increase in the home’s value (fair market value minus donor’s adjusted basis).
If you received the home from your spouse, or from your former spouse as part of a divorce settelement, your basis depends on the date the home was transferred to you.
If the transfer was made after July 18, 1984, your basis is the same as your spouse’s or former spouse’s adjusted basis at the time of the transfer. This is the case even if you made a cash payment or released certain marital rights.
If you received the home prior to July 19, 1984, in exchange for your release of marital rights, your basis is the fair market value of the home when you received it.
If you inherited your home, your basis is the fair market value on the date of the decedent’s death, or on the alternate valuation date set by the estate representative. This value is generally listed on the estate tax return. If you are a surviving spouse and owned the home jointly with your deceased spouse, your half of the basis will remain the same as it was (original cost, for example), but the basis of the half interest you inherit from your spouse will be half the fair market value on the date of death or alternate valuation date. You will need to add these two amounts together to determine your new total basis in the home.