Adjusted Cost Basis Helper

Description
The cost basis of a property, which is crucial for tax purposes and calculating capital gains or losses upon sale, can be affected by a variety of factors from the initial purchase through ownership to eventual sale or other disposition. Understanding these factors is essential for accurate financial planning and reporting. Here are the key elements that can affect a property's cost basis:


Purchase Price: The initial acquisition cost of the property is the foundation of the cost basis, including the contract price plus any fees or costs directly associated with the purchase (e.g., closing costs, legal fees, real estate agent commissions).


Improvements: Any money spent on improvements that increase the value of the property, extend its life, or adapt it to new uses can be added to the cost basis. This includes additions, major renovations, and landscaping, but not repairs or maintenance expenses.


Legal Fees: Certain legal fees directly related to buying or improving the property can be added to the basis.


Closing Costs: Many closing costs and settlement fees involved in acquiring the property can adjust the cost basis. This might include title search fees, preparation costs for sales contracts and deeds, survey fees, and owner's title insurance.


Property Tax: In some cases, certain types of property taxes paid at the time of purchase, if required for the transfer of ownership, can be part of the cost basis.


Assessments for Local Improvements: Costs assessed by local governments for improvements such as streets, sidewalks, and sewer lines can be added to the cost basis if they increase the property's value.


Depreciation: For investment or business properties, depreciation deducted over the years reduces the cost basis.


Casualty Losses: If you suffer a property loss from events like fires or storms, and you make a casualty loss deduction for insurance or other reimbursements, this can reduce the property's cost basis.


Insurance Payments: Insurance payouts for damages that are not used for repairs or are in excess of the actual repair costs may affect the cost basis.


Energy Efficient Improvements: Some energy-efficient improvements may also affect the cost basis if they meet certain criteria and eligibility for tax credits or deductions.


Inherited Property: For inherited property, the cost basis is generally the fair market value of the property at the time of the previous owner's death, known as a "step-up" basis.


Gifted Property: If the property was received as a gift, the cost basis is the donor's adjusted basis, unless the market value at the time of the gift was lower.


Each of these elements can either increase or decrease the cost basis of a property, and the way they impact the cost basis may vary based on specific circumstances and tax laws. Properly tracking and adjusting the cost basis of your property is essential to accurately calculating your tax obligations and capital gains or losses when you sell or otherwise dispose of the property.


This template is also included in three bundles:

• All Financial Models
• Real Estate Models
• Accounting Tools