Cost Basis Real Estate: How To Calculate

May 28, 2024

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A stunning house captured during twilight hours.

What does the term “cost basis” refer to in real estate – and how can you calculate it in any given property?

It’s a smart question to ask, as your cost basis in real estate holdings effectively determines how much (if any) money you’ll potentially be expected to pay tax on upon the sale of your property or assets at a later date. It’s important to speak with an accountant or tax professional about taxes that may relate specifically to your sale.

What Is Cost Basis In Real Estate?

Put simply, the cost basis in real estate is the original value that a buyer pays for their property. This includes, but is not limited to, the price paid for the property, any closing costs paid by the buyer and the cost of improvements made (excluding tax credits associated with improvements).

Cost basis is essentially the amount that your property is worth from the standpoint of taxation. Upon the sale of a piece of real estate (for example, your single-family home) profit or loss is calculated by taking the property’s sales price and subtracting it from your cost basis on the date of sale. In essence, the bigger your cost basis is, the less your ultimate gains (aka profits) will be – and the less you’ll owe come tax time.

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