How Do I Calculate Cost Basis for Real Estate?
If you own property that you need to account for in your return, H&R Block can help you figure out how to calculate cost basis for the real estate you own.
First, it’s important to know that basis is the amount of your capital investment in a property and is used for tax purposes. To find the adjusted basis:
- Start with the original investment in the property.
- Add the cost of major improvements.
- Subtract the amount of allowable depreciation and casualty and theft losses.
How to Determine the Original Investment in the Property
How you determine the original investment in the property can vary. In most cases, the basis is the asset’s cost. The cost includes sales tax and other expenses for the purchase. Review the list below for other cases and how to calculate the cost basis for real estate.
- For inherited property, the basis is the fair market value (FMV) at the date of death.
- For gifted property, the basis depends on any gain or loss when you sell the property:
- When there’s a gain, the basis is the donor’s adjusted basis.
- When there’s a loss, the basis is the lesser of the donor’s adjusted basis, or the FMV at the time of the gift.
- For property that has changed from personal to business use, the basis used to calculate depreciation (i.e. the depreciable basis) is generally the lesser of adjusted basis or FMV of the property at the time of conversion. When you sell the property, the basis reported on your tax return depends on whether the property is sold at a gain or loss:
- When there’s a gain, the basis is your adjusted basis when you sell the property.
When there’s a loss, the basis for the purposes of calculating the allowable loss is the lesser of the adjusted basis (i.e. cost minus depreciation) or remaining depreciable basis (i.e. the FMV at the time of conversion to business use plus improvements minus depreciation).
How to Calculate Stock Cost Basis
If you own stocks or other investments, you’ll use a similar method to calculate stock’s cost basis. In general, the stock’s basis will be what you paid for the shares.
When someone sells you property for less than full value, it’s considered a gift of equity. Let H&R Block explain why this might have tax implications.
Learn about unemployment income and how it affects your taxes from the experts at H&R Block.
Learn more about capital loss carryovers and get tax answers at H&R Block.
The minimum income amount depends on your filing status and age. In 2017 for example, the minimum for single filing status if under age 65 is $10,400. If your income is below that threshold, you generally do not need to file a federal tax return. Review our full list for other filing statuses and ages.