I AM TRYING TO FIGURE MY COST BASIS FOR A PRIMARY RESIDENCE I SOLD IN DEC 2016. I HAVE PAID OFF 2 DIFFERNT FIRST MORGAGES.

[jevco2]

I AM TRYING TO FIGURE MY COST BASIS TO GET THE CAPITAL GAINS

[Opus 17]

Your cost basis is what you paid to build or improve the house.  Amounts you borrowed have nothing to do with it.

The cost basis of house #1 is what you paid to build it.  Include the cost of the land, plus what you paid to contractors for labor and materials.  You can't include a value for your own labor.  You can include legal expenses like title searches and land surveys.  You can include required inspections that are part of the building process (fire inspection, electrical inspection, etc.)  You can include fees for building permits.  You can include the cost to bring utilities onto the land if you had to do that (water, gas, sewer, electric).  You can include other costs you paid to permanently improve the real property (the land) even if they are not attached to the house -- like planting trees and shrubs and doing landscaping.  You can't include costs for items that are no longer permanently attached to the real property.  For example, if you build the house in 1990 with a deck, and in 2010 you took off the deck and installed a patio, you can include the cost of the patio but not the deck.

This has nothing to do with loans or mortgages.  Suppose that for house #1, you had a $180,000 construction loan/mortgage, but you actually paid $200,000 when you add in legal fees and more recent improvements.  Your cost basis is $200,000.  (Likewise if you had a $180,000 construction loan but you only actually paid $175,000 to build the house, your cost basis is $175,000.)  If you pay off the first mortgage and then take a second mortgage for $250,000, then the cost basis for house #1 is still whatever you actually paid to build or improve the house, no matter what you use the proceeds of the loan for.    If you used $10,000 to remodel the kitchen of house #1 and $240,000 to build house #2, your cost basis for house #1 increases by $10,000, it does not increase by $250,000. 

Likewise, your cost basis for house #2 is what you actually paid to build house #2, no matter where the money came from.  It is not zero because the money was borrowed, and it is not $250,000 because that is what you borrowed; the cost basis for house #2 is what you actually paid for the land, the labor and materials and legal expenses, no matter where that money came from.

The amount of mortgage loan(s) and what you used it for doesn't matter.  Only what you actually paid to buy, build and improve the property.

[VolvoGirl]

The mortgages don't figure into it.  Your cost is what you originally purchased it for.  Then your Basis is cost + major improvements.

[jevco2]

I PAID FOR IT 2 TIMES THE COST THE FIRST TIME WAS 180,000.00 AND THE SECOND TIME I PAID FOR IT WAS 250,000.00.  WHAT IS MY COST FOR THE HOUSE.  THE TOTAL COST THAT I PAID IS 430,000.00

[VolvoGirl]

I don't know what your cost is.  As I said the mortgage does not count.  Mortgage is not your cost.  How much was the original price?  Did you buy it for 180,000 and nothing down?

[jevco2]

I BUILT THE HOUSE I DID NOT PURCHASE IT FROM ANYONE

[jevco2]

I PAID THE HOUSE ONCE AND THEN BUILT ANOTHER HOUSE AND USED THE PRIMARY RESIDENCE AS COLLATERAL TO BUY LAND FOR THE NEW HOUSE SO THE PRIMARY HAD ANOTHER $250,000.00 I HAD TO PAY OFF TO SELL THE PRIMARY HOUSE.

[VolvoGirl]

Oh that gets more complicated.

[jevco2]

OK WHAT DO I DO NOW?

[Opus 17]

By the way, using ALL CAPS is considered the internet equivalent of shouting.  It's not needed and can be interpreted by some as rude.

[v_viv]

Hello,

I liked the way you explained in great detail (though it was some years back 😊).

I have a situation as follows:

• Land was purchased in 2008 by taking a loan, say $100. Interest of $20 was paid on that loan from 2008 to 2012.
• In 2012, loan was taken for construction of the home, say $250. From the date of the loan, till the construction was completed, interest on such loan was paid, $12.
• None of this interest was deducted in any of the tax returns between 2008 to 2013.
• Question:
  Can the interest paid, that is, $20 + $12 be added to the cost basis of the primary home for computing the gain / loss upon sale?

Thanks.

[Mike9241]

No. unless you made an IRC 266 election each year 

IRC Section 266 allows taxpayers to capitalize certain taxes and carrying charges related to unimproved and unproductive real estate. Taxpayers can elect to capitalize expenses such as property taxes, interest on a mortgage, and other carrying charges instead of deducting them in the current year. This election must be made annually and is applicable to properties that are not used for any business purposes