It is the original purchase price of real estate plus certain expenses and fees incurred by the buyer, many of them detailed at closing. In a community property state, receipt of the step-up becomes a bit more complicated.
Include not only the selling price of the property but any sales taxes you paid, real estate taxes owed by the seller that you paid as part of the initial sale, legal fees, recording fees, cost of a survey and other settlement charges. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Capital gains taxes are based on the difference in the sales price and the investment you made in the property.
Stepped-up basis? Basis also comes into play when you sell the asset, since, if you sell it at a profit, capital gains taxes are calculated relative to your basis. Not every penny you spend on the property adds to its basis.
Basis can be adjusted upward by the costs of home improvements and home additions and even related tax credits received by the homeowner , rebuilding costs following a disaster, legal fees linked to property ownership, and expenses of linking utility lines to a home. To do this, allocate the cost basis between the building and the land on which it sits.
If you claimed a deduction on your tax return for the casualty loss, you must also subtract that amount from the property's tax basis. When your business owns real estate, calculating its basis is important.
She has been published on Yahoo! In such instances, we need to understand some of the jargon involving inherited real estate.
If individuals or married couples want to sell an inherited home, they can qualify for this big federal tax break once they have used that home as their primary residence for two years out of the five years preceding the sale.
Use the price you originally paid for the property as the starting point for figuring your basis. Do not include routine maintenance items.
Adjusting Your Basis as You Own the Property As you own the property, you can add the costs of any capital improvements that you make to the property to your cost basis to create an adjusted basis.