What is the cost basis of a home?

Basis in plain terms

Basis is a record of your investment in the home for tax purposes. Publication 530 says it is your starting point for figuring a gain or loss if you later sell the home, or for figuring depreciation if you later use part of your home for business or for rent. It matters on the day you sell, but the publication stresses that you must keep track of basis and adjusted basis during the whole period you own the home, and keep records of the events that affect them, because you will not remember in twenty years what the deck cost.

If you bought the home

The cost of your home, whether you purchased it or built it, is the amount you paid for it, including any debt you assumed. The publication says this usually includes your down payment and any debt you assumed, and that it includes most settlement or closing costs. For a cooperative apartment the basis is the amount you paid for your shares in the corporation that owns or controls the property, including purchase commissions or other costs of acquiring the shares. Which closing costs count and which do not is covered on our closing costs page: abstract fees, utility installation, legal fees, recording fees, surveys, transfer taxes and owner's title insurance go in, while loan-related charges such as appraisals required by a lender, credit reports and mortgage insurance do not.

If you built the home

If you contracted to have the home built on land you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. That includes the cost of labor and materials, the amount paid to the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees directly connected with building. If you built all or part of it yourself, basis is the total amount it cost you, but you cannot include the value of your own labor or any other labor for which you did not pay.

Property taxes and the seller’s share

Real estate taxes are divided between you and the seller by the part of the tax year each of you owned the home. If you pay the seller's share and are not reimbursed, add that to your basis rather than deducting it. If the seller paid your share and you did not reimburse them, reduce your basis by it, and you can still deduct it. The publication's first example: a $1,275 annual tax paid by the seller, with you owning the home for 122 of 365 days, reduces your basis by $426. Its second example shows taxes for the prior tax year paid after you bought: the $1,375 you paid in 2025 for 2024 goes into the cost of the home because it relates to a year you did not own it, while only 243/365 of the next bill ($949 of $1,425) is deductible and the remaining $476 is added to basis.

Gifts, inheritances and spouses

How you acquired the home changes the starting point. If the home was transferred to you from your spouse, or from a former spouse as a result of divorce, your basis is the same as their adjusted basis just before the transfer. For a gift, your basis is usually the donor's adjusted basis, and when that basis is more than the market value at the time of the gift, a split applies: the donor's basis is used to figure a gain and the market value at the date of the gift to figure a loss. The publication's example: donor basis $100,000, market value $80,000. Selling at $120,000 gives a $20,000 gain, selling at $70,000 gives a $10,000 loss, and selling at $90,000 gives neither. If the donor's basis was equal to or less than market value, your basis is the donor's adjusted basis plus the part of any federal gift tax paid that is due to the net increase in value.

For an inherited home your basis is generally the fair market value on the date of the decedent's death, or on the alternative valuation date if the personal representative chose it. If an estate tax return was filed it is generally the value on that return, and if you received a Schedule A (Form 8971) statement you may have to report a basis consistent with it. If no estate tax return was filed, it is the appraised value at the date of death for state inheritance or transmission taxes. The publication sends you to Publications 551 and 559 for details.

From original basis to adjusted basis

Events while you own the home change original basis into adjusted basis. The publication's Table 3 lists the common ones. Increases: improvements (a new addition, a replacement roof, paving the driveway, central air conditioning, rewiring), assessments for local improvements, and amounts spent to restore damaged property. Decreases: insurance or other reimbursement for casualty losses, a deductible casualty loss not covered by insurance, payments received for an easement or right-of-way, depreciation allowed or allowable on business or rental use, the value of an excluded energy conservation subsidy, adoption tax benefits, and a residential energy credit taken (the basis increase from qualifying energy property is reduced by the credit). The calculator above applies that arithmetic. See also whether home improvements are deductible.

Worked example with invented numbers

You buy a home for $400,000 and $3,200 of settlement fees go into basis, so original basis is $403,200. Years later you spend $25,000 on a new roof and kitchen wiring, receive a $5,000 insurance payment for storm damage that you do not spend on restoration, and claim a $2,000 energy credit on a qualifying installation. Adjusted basis is $403,200 + $25,000 - $5,000 - $2,000 = $421,200. Without the improvement receipts, a later sale would show a bigger taxable gain, which is why they matter. The illustration is not from the publication and ignores the exclusion rules for selling a main home, which are in Publication 523.

How long to keep the records

Publication 530 says to keep records that support an item of income, a deduction or a credit until the period of limitations for the return runs out, which for assessment of tax is generally 3 years from the date you filed. Basis records are different: keep them as long as they are important in figuring the basis of the original or replacement property, which generally means as long as you own it and then for the period of limitations that applies after you dispose of it. Keep the purchase contract and settlement papers, and receipts and canceled checks for improvements. Table 4 in the publication is a form for logging improvements by type, date and amount.

Sources

• IRS Publication 530, Tax Information for Homeowners (2025): the “Basis” section, including “Cost as Basis”, “Gift”, “Inheritance”, “Adjusted Basis” and “Keeping Records”. Read November 2, 2026.

Edition read: Publication 530 (2025), for use in preparing 2025 returns. Dollar limits, credits and rates in the publication are for 2025 and can change; check the current publication and the Schedule A instructions for your tax year. This page summarizes the publications and does not replace them. Marked for human review.