Hi Coleman2022,
Great question!
The cost of your home at purchase already includes any down payments. As the old joke goes, "The Cost is the Cost".
But, if you bought a home for $612K, which does not include other cost to purchase that home, only some of those costs like the ones below can initially be added to the $612K, before then adding on improvements.
The following is TaxAudit.com:
Mortgage-related items that can be added to the basis include recording fees, owner's title insurance, and more. The following are some of the settlement fees and closing costs that you can include in the original basis of your home.
- Abstract fees (abstract of title fees)
- Charges for installing utility services
- Legal fees (including fees for the title search and preparation of the sales contract and deed)
- Recording fees
- Surveys
- Transfer or stamp taxes
- Owner's title insurance
- Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions
Once you have determined what closing costs can be added to the $612K, then you would add the cost of any improvement that extends the life or increases the value of the home, which cannot include your own time and effort to make the improvement.
This final total of all the above now becomes your adjusted basis to live in that how with all other costs as tax deductible, you can itemize your deductions on your return.
On the selling side, any cost you incur to the sell the home (closing cost) are then subtracted against the gross selling price, which then becomes your NET SELLING PRICE.
You would subtract your ADJUSTED BASIS from your NET SELLING PRICE and be subject to Short-Term Capital Gains tax on the net difference.
Good luck!
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