The sales expenses are not shown on Form 1099-S. You will need to determine the date the property was acquired and the cost basis for the property.
The amount shown on the 1099-S is the proceeds. The basis includes the cost of the property when purchased, some expenses from the settlement statement, any improvements that you made such as a new roof or major renovation, and expenses of the sale that are listed on the settlement statement.
Settlement or closing costs.
If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.
The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home.
Items added to basis.
You can include in your basis the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.
The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
Abstract fees (abstract of title fees).
Charges for installing utility services.
Legal fees (including fees for the title search and preparation of the sales contract and deed).
Recording fees.
Surveys.
Transfer or stamp taxes.
Owner's title insurance.
Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions.
The basis for the property is the value when the property was acquired. You may be able to use the tax assessor's office or know some local real estate agents that can provide a better basis. Included in the basis will also be the selling expenses.
The basis for inherited property is the value on the date of death. You may be able to use the tax assessor's office or know some local real estate agents that can provide a better basis. Included in the basis will also be your share of the selling expenses.
Other expenses like improvements are added to the basis.
Home improvements may come into play when you sell your home because they're included in your home's adjusted cost basis. The bigger your basis, the smaller your capital gain, and that means less tax.
To qualify as an increase in the adjusted basis when you sell, the home improvement must:
- Add materially to the value of your home; or
- Prolong your home's useful life significantly; or
- Adapt your home to new uses
Here are some examples of improvements:
- Remodels and room additions (including decks and porches)
- New or upgraded landscaping, irrigation, sprinkler system
- Hardscape such as pavement, block or retaining wall, patio
- Fencing
- Storm windows, doors
- New roof
- Upgraded wiring, plumbing, ductwork
- Central heating, AC, humidifier
- New furnace, water heater
- Filtration, soft-water, or septic system
- Built-in appliances
- New flooring or wall-to-wall carpeting
- Upgraded insulation
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