Understanding Tax Basis: Key Steps for Sellers of Appreciated Real Estate

ARTICLE | August 30, 2024

Authored by Vasquez + Company

As residential real estate prices continue to rise, homeowners may face significant unrealized gains when selling their property. The article, "Computing Tax Basis Counts When Selling a Highly Appreciated Home," delves into how to calculate your tax basis, which influences the taxes owed on the sale of a principal residence. It outlines the key ownership and use tests for the federal income tax gain exclusion, details on how to increase your tax basis with eligible costs, and practical tips on minimizing taxable gain through accurate recordkeeping.

Key Points:

• Ownership and Use Tests: Detailed explanations of the two tests required to qualify for the home-sale gain exclusion.
• Tax Basis Components: Includes costs from purchasing, constructing, and improving the home.
• Energy-Efficient Expenditures: How to handle related tax credits.
• Seller-Paid Closing Costs: The impact on taxable gain and practical considerations for sellers.
• Recordkeeping: Importance of maintaining accurate records to support tax basis calculations.

For more information, read the full article here.

Our firm provides the information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.