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jevco2
New Member

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.

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

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Accepted Solutions
Opus 17
Level 15

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.

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.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

View solution in original post

9 Replies
Opus 17
Level 15

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.

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.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
VolvoGirl
Level 15

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.

The mortgages don't figure into it.  Your cost is what you originally purchased it for.  Then your Basis is cost + major improvements.
jevco2
New Member

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.

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
Level 15

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.

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
New Member

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.

I BUILT THE HOUSE I DID NOT PURCHASE IT FROM ANYONE
jevco2
New Member

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.

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
Level 15

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.

Oh that gets more complicated.
jevco2
New Member

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.

OK WHAT DO I DO NOW?
Opus 17
Level 15

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.

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.
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
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