Publication 523 is the IRS Guide on the Sale of your Home. The worksheet in this form is used to place a dollar amount (Basis) on your home for Tax Purposes. When Taxes are involved the Adjusted Basis of your home is the Total Basis minus any Adjustments. The Total Basis is basically the amount of money you have invested in your home, Purchase Price plus any Capital Improvements (mortgage interest doesn't count). The Adjustments are any tax benefits your might have received such as Depreciation (rental properties), Home Office Deductions, Casualty Losses, and various other items.
Your Adjusted Basis in this case is the Value of your home used to determine if you have a Capital Gain (profit) from the sale. If this property was your homestead at the time of sale you have a $250,000.00 exclusion from any profit on the sale.
I have attached the publication below. It is not a short read and the worksheet asks for quite a bit of information. I suggest that this be completed to help avoid any discrepancies in your Tax Return. If you have any further questions on this topic please feel free to ask them on this thread.
