Figuring cost basis of property to be sold?

[tojodorian]

Greetings,

I am selling a property this year (likely closing July 2021) the property was purchased in July 2014, we lived in the property from July 2014 until October 2018. I believe this will omit us from having to pay capital gains, however I still need some insight on figuring cost basis for other tax purposes.

When figuring the cost basis of the property I believe I am able to include the original purchase price (obviously), the closing costs etc from purchasing the property, but what about real estate taxes? Am I able to include the annual real estate taxes that I've paid on the property, and if so, can I only include the taxes from the years we actually lived in the house, or can I include the annual property taxes from the date we purchased until the date we sell?

I'm pretty sure I can't include the taxes in the cost basis, but just wanted to double check just in case. Thank you for any insight provided!

[Mike9241 · Accepted solution]

you are correct. real estate taxes do not add to your basis. 

basis is usually the cost to acquire property (inherited and/or gifted property would be exceptions)

real estate taxes and mortgage interest are costs of ownership. no different than your electric bill.  

[tojodorian]

Thank you for confirming, that's what I figured. Have a great day!

[Carl]

purchased in July 2014, we lived in the property from July 2014 until October 2018.

You don't say what the property was used for after October of 2018. Was it rental property you rented out maybe?

In a nutshell, your cost basis is what you originally paid for the property, plus the cost of any property improvements you paid for after your acquisition of the property. From that total you subtract all depreciation taken on the property. If you used the property for any type of business use (rental, claimed a home office, etc) then you are required to recapture the depreciation taken, or the amount of depreciation you were required to take if you in fact, did not depreciate the property as required.

If the property is still classified as a rental property at the time of the sale, then you report the sale in the SCH E section of the program and the program will take care of the depreciation recapture for you, automatically in the background.

[tojodorian]

Sorry for not clarifying, the property has been vacant since we moved out. We have never rented the property, nor has anyone else lived there under any circumstances.