If fortunate enough to sell a home for more than the total gain exclusion, there is also a need to know how much the total gain is. Determining the sale price is easy, that’s the sale price listed at the top of the purchase and sale statement or the HUD-1 form received at closing. A home’s basis (purchase price) can be a bit more daunting.
To properly calculate it, the HUD-1 statement from both the sale and the purchase is needed. The purchase HUD will include the base price originally paid for the home. Both the purchase and sale HUD will contain adjustments the increase the base price, such as transfer taxes, title insurance, realtor fees, buyer credits and attorney fees.
The purchase price is also adjusted for improvements made over the time the home was owned. This can include significant remodeling costs, upgrades such as adding a deck or addition, and any major replacements, such as a new heating system or septic tank. If all I’s are dotted and Ts are crossed, there will also be adjustments for tax credits taken related to certain home improvements.
If real estate was inherited, or owned jointly with a decedent, there are likely adjustments for step-up in basis at the time of death. Also, some adjustments may be needed if the real estate can be considered multiple parcels, such as a multi-family unit where only one of the units was occupied by the homeowner.
If you would like to discuss the tax ramifications of selling your home please feel free to contact us for a consultation.
Written by Damien Falato, CPA, MST, CGMA, Tax Director