Kathleen Pender has a great article in today’s Chronicle on how to determine the cost basis on your home.

“When you sell a stock, house or other asset, your adjusted cost basis is subtracted from your sales proceeds to determine your capital gain or loss.”

“Single homeowners can exclude $250,000 in capital gains on the sale of a primary residence, and married couples filing jointly can exclude up to $500,000, if they have owned and lived in the house for at least two of the previous five years ending on the date of sale. Any profit over those limits is taxed at the capital gains rate, which tops out at 15 percent.”

“According to Internal Revenue Service Publication 523, you can add to basis the cost of “additions and other improvements that have a useful life of more than one year.” Improvements are things that “add to the value of your home, prolong its useful life, or adapt it to new uses.”"

“Improvements that are no longer part of the home cannot be added to basis. For example, if you installed carpeting, then replaced it with wood floors, the carpeting is no longer part of your basis. Or if you plant a tree and it dies, the tree exits your cost basis.”

“Expenses to fix up a home for sale, such as a fresh coast of paint, cannot be deducted from the sales proceeds, nor can they be added to basis…”

Some improvements that can be added to the cost basis of a home:

• Additions: bedroom, bathroom, deck, garage, porch, patio, sunroom.

• Lawn & grounds: landscaping, driveway, walkway, fence, retaining wall, sprinkler system, swimming pool.

• Heating and cooling: heating system, central air conditioning, furnace, duct work, central humidifier, filtration system.

• Plumbing: septic system, water heater, filtration or soft water system.

• Interior: built-in appliances, kitchen modernization, flooring, carpeting.

• Insulation: attic, walls, floor, pipes, ductwork.

• Miscellaneous: storm windows or doors, new roof, central vacuum, wiring upgrades, satellite dish, security system.

Source: Internal Revenue Service Publication 523

As always, rely on your accountant or CPA for the final word.

This entry was posted on Sunday, February 19th, 2006 at 5:25 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.