Your basis in your home is determined by how you got the home. Generally, your basis is its cost if you bought it or built it. If you got it in some other way (inheritance, gift, etc.), your basis is generally either its fair market value when you received it or the adjusted basis of the previous owner.
While you owned your home, you may have made adjustments (increases or decreases) to your home's basis. The result of these adjustments is your home's adjusted basis, which is used to figure gain or loss on the sale of your home. For example, certain home improvements you make add to your home's adjusted cost basis.
You can include in your basis some of the settlement fees and closing costs you paid for buying the home, but not the fees and costs for getting a mortgage loan. Settlement fees do not include amounts placed in escrow for the future payment of items such as taxes and insurance.
Some of the settlement fees or closing costs that you can include in your basis are:
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Abstract fees (abstract of title fees),
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Charges for installing utility services,
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Legal fees (including fees for the title search and preparing the sales contract and deed),
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Recording fees,
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Survey fees,
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Transfer or stamp taxes,
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Owner's title insurance, and
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Any amounts the seller owes that you agree to pay, such as:
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Certain real estate taxes (discussed later),
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Back interest,
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Recording or mortgage fees,
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Charges for improvements or repairs, and
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Sales commissions.
Some settlement fees and closing costs you cannot include in your basis are:
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Fire insurance premiums,
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Rent for occupancy of the house before closing,
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Charges for utilities or other services related to occupancy of the house before closing,
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Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994),
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Charges connected with getting a mortgage loan, such as:
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Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs),
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Loan assumption fees,
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Cost of a credit report,
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Fee for an appraisal required by a lender, and
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Fees for refinancing a mortgage.
More details and helpful information can be found within IRS Publication 523. https://www.irs.gov/publications/p523/ar02.html
