Basis for sale of home

Forum|Forum|3 years ago
February 1, 2023
2 replies
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I purchased a small home in 1985, and in 1996 bulldozed it to build a larger home on the same lot.

I have keep good records of expenses during these years that can be used to adjust the basis.

However...not sure about.....

How much of the cost of original house and land is included in the basis of the home which was sold in 2022.

The 2022 tax records will show that the preserved lot was worth more than the original purchase price.

maglib

Employee

@Kham The whole cost would be part of the basis.

Your adjusted basis is generally your cost in acquiring your home plus the cost of any capital improvements you made, less casualty loss amounts and other decreases. For more information on basis and adjusted basis, refer to Publication 523, Selling Your Home. If you financed the purchase of the house by obtaining a mortgage, include the mortgage proceeds in determining your adjusted cost basis in your home.

You may be able to exclude from income all or a portion of the gain on your home sale. If you can exclude all of the gain, you don't need to report the sale on your tax return, unless you received a Form 1099-S, Proceeds From Real Estate Transactions. To determine the amount of the gain you may exclude from income or for additional information on the tax rules that apply when you sell your home, refer to Publication 523. You must report on your return as taxable income any capital gain that you can't exclude.

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Carl11_2

Employee

Basically, your entire original purchase price gets allocated to the land, and the cost of the new structure is allocated to the structure.

Example:

Purchase price for house & Lot - $100,000

Demolished house, built new house for $50,000

Cost basis for the land - $100,000

Cost basis for the structure - $50,000

Total cost basis - $150,000

This is just a rough. There are other variables that can come into play. For example, any property improvements you may have done to the old structure, or if you rented out the old structure at any time before you demolished it, that will affect the cost basis.