When calc'ing capital gains tax, do I need to exclude any "seller credits" I received from the cost basis? Or can I just use final sale price + applicable + improvement?

[caleyzajac]

ie I bought for $240K, had $2K in applicable closing costs + $7K in home improvements. However, on the Closing Disclosure there is also a line for "seller credits" of ($4K). Do I need to remove that from the basis, or is my adjusted cost basis $240K+$2K+$7K = $249K?

[ThomasM125]

It sounds like the seller credits would represent an increase in your proceeds upon the sale, so you would need to reduce the cost basis by that amount.

[caleyzajac]

@ThomasM125 I’m not sure I understand. Why would the seller credits increase my proceeds when I sell? They should have nothing to do with my eventual sale price/realized amount, correct? I can’t find anything that mentions seller credits...just sale price plus applicable closing costs and home improvements? As far as reductions to cost basis I see mention of “mortgage points paid by the seller” but I don’t think this qualifies. Any additional thoughts? Thanks!

[JosephF8]

Did you give a credit to the buyer of $4k? If so, then yes it is a cost of sale and reduces the sale price. 

[caleyzajac]

@JosephF8  No, This pertains to why I originally purchased the home. There is a line for ($4k) on the Closing Disclosure from when I purchased shown as “seller credit”. But I haven’t seen anything about reducing the cost basis for seller credits in any research I’ve done. Just says final price of the home + buyer closing costs (excluding anything related obtaining mortgage) + home improvements to get to my adjusted basis. Then my understanding is I’d subtract that from my realized amount from when I sold (selling home price less selling closing costs). I feel like seller credits are common practice so I’m not sure why I can’t find how to treat as the buyer who receives the credit (versus the seller who gives them which is well documented). Thanks!

[JosephF8]

Thank you for the clarification. Seller's credits in this case are a reduction of your original purchase price and reduce the basis in the property as @ThomasM125 noted and properly treated above.