What is my Adjusted Basis in my home?

Adjusted Basis: When Your Home’s Value (For Tax Purposes) Gets a Makeover

Your home’s adjusted basis isn’t just what you originally paid for it—it changes over time based on improvements, damages, tax breaks, and other twists and turns in homeownership.

Think of it like your home’s financial history, constantly updating itself!

What Increases Your Basis? (What Adds Value to Your Home)

Certain costs make your home’s basis go up, including:
-Major improvements (like adding a deck, finishing a basement, or upgrading the kitchen—anything that lasts more than a year)
-Special assessments for local improvements (like new sidewalks or sewer systems)
-Fixing your home after a disaster (because rebuilding after a storm isn’t free)

What Decreases Your Basis? (What Lowers Your Home’s Taxable Value)

Some things actually reduce🔻 your home’s basis, such as:
-Mortgage debt that got forgiven – yep, if your lender let you off the hook, it impacts your home’s basis
-Certain canceled debts due to bankruptcy or insolvency
-A tax-free gain from selling a previous home before May 7, 1997 – if you turned your new home into a rental
-Casualty losses you deducted on your taxes – if you got a tax break for damage, you can’t double dip!
-Insurance payouts for casualty losses
-Money received for granting an easement or right-of-way – like if you let the city build a sidewalk on your land
-Depreciation on a rental or business portion of your home
-Old-school energy credits – (pre-1986 and post-2005) if you already added those costs to your basis
-Tax credits or exclusions from adoption benefits that went toward home improvements
-First-Time Homebuyer Credit – if it wasn’t fully recaptured yet
-Subsidies for energy conservation – if you excluded them from income
-D.C. First-Time Homebuyer Credit – for those lucky enough to buy in the nation’s capital
-Sales tax deductions on big personal property purchases – like a houseboat or mobile home used as your primary home

Why Does This Matter?

Your adjusted basis is super important when you sell your home because it helps determine how much profit (a.k.a. taxable gain) you actually made. The higher your basis, the lower your taxable gain—which can mean paying less in taxes. So, keep track of those home improvements and other basis adjustments—it could save you big bucks later!