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?
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.
@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!
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.
@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!
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.