Publication 530 - Tax Information For First-Time Homeowners

Table 3. Adjusted Basis

reimburse the seller for your share of the real

estate taxes from September 1 through Decem-

This table summarizes items that generally will increase or decrease your basis in

ber 31. You must reduce the basis of your home

your home.

by the $244 [(122 ÷ 365) × $730] the seller paid

for you. You can deduct your $244 share of real

Increases to Basis

Decreases to Basis

estate taxes on your return for the year you

purchased your home.

•

Improvements:

Insurance or other reimbursement for

•

Putting an addition on your home

casualty losses

Example 2. You bought your home on May

•

Replacing an entire roof

Deductible casualty loss not covered

3, 2002. The property tax year in your area is the

•

by insurance

Paving your driveway

calendar year. The taxes for the previous year

•

Payments received for easement or

are assessed on January 2 and are due on May

Installing central air conditioning

•

right-of-way granted

31 and November 30. Under state law, the taxes

Rewiring your home

•

become a lien on May 31. You agreed to pay all

Depreciation allowed or allowable if

taxes due after the date of sale. The taxes due in

home is used for business or rental

2002 for 2001 were $520. The taxes due in 2003

purposes

Assessments for local improvements

•

for 2002 will be $565.

Value of subsidy for energy

(see Assessments for local benefits)

conservation measure excluded from

You cannot deduct any of the taxes paid in

income

2002 because they relate to the 2001 property

Amounts spent to restore damaged property

tax year. You did not own the home until 2002.

Instead, you add the $520 to the cost (basis) of

your home.

The cost of your home includes most settle-

You owned the home in 2002 for 243 days

Basis

ment or closing costs you paid when you bought

(May 3 to December 31), so you can take a tax

the home. If you built your home, your cost

deduction on your 2003 return of $376 [(243 ÷

includes most closing costs paid when you

Basis is your starting point for figuring a gain or

365) × $565] paid in 2003 for 2002. You add the

bought the land or settled on your mortgage.

loss if you later sell your home, or for figuring

remaining $189 ($565 − $376) of taxes paid in

depreciation if you later use part of your home

Purchase. The basis of a home you bought is

2003 to the cost (basis) of your home.

for business purposes or for rent.

the amount you paid for it. This usually includes

While you own your home, you may add

your down payment and any debt you assumed.

Settlement or closing costs. If you bought

certain items to your basis. You may subtract

The basis of a cooperative apartment is the

your home, you probably paid settlement or

certain other items from your basis. These items

amount you paid for your shares in the corpora-

closing costs in addition to the contract price.

are called adjustments to basis and are ex-

tion that owns or controls the property. This

These costs are divided between you and the

plained later under Adjusted Basis.

amount includes any purchase commissions or

seller according to the sales contract, local cus-

It is important that you understand these

other costs of acquiring the shares.

tom, or understanding of the parties. If you built

terms when you first acquire your home be-

your home, you probably paid these costs when

Construction. If you contracted to have your

cause you must keep track of your basis and

you bought the land or settled on your mortgage.

home built on land that you own, your basis in

adjusted basis during the period you own your

The only settlement or closing costs you can

the home is your basis in the land plus the

home. You also must keep records of the events

deduct are home mortgage interest and certain

amount you paid to have the home built. This

that affect basis or adjusted basis. See Keeping

real estate taxes. You deduct them in the year

includes the cost of labor and materials, the

Records, later.

you buy your home if you itemize your deduc-

amount you paid the contractor, any architect’s

tions. You can add certain other settlement or

fees, building permit charges, utility meter and

Figuring Your Basis

closing costs to the basis of your home.

connection charges, and legal fees that are di-

rectly connected with building your home. If you

Items added to basis. You can include in

How you figure your basis depends on how you

built all or part of your home yourself, your basis

your basis the settlement fees and closing costs

acquire your home. If you buy or build your

is the total amount it cost you to build it. You

you paid for buying your home. A fee is for

home, your cost is your basis. If you receive your

cannot include the value of your own labor or

buying the home if you would have had to pay it

home as a gift, your basis is usually the same as

any other labor for which you did not pay.

even if you paid cash for the home.

the adjusted basis of the person who gave you

the property. If you inherit your home from a

The following are some of the settlement

Real estate taxes. Real estate taxes are usu-

decedent, the fair market value at the date of the

fees and closing costs that you can include in

ally divided so that you and the seller each pay

decedent’s death is generally your basis. Each

the original basis of your home.

taxes for the part of the property tax year that

of these topics is discussed later.

each owned the home. See the earlier discus-

•

Abstract fees (abstract of title fees).

sion of Real estate taxes paid at settlement or

Fair market value. Fair market value is the

•

Charges for installing utility services.

closing, under Real Estate Taxes, to figure the

price that property would sell for on the open

real estate taxes you paid or are considered to

•

Legal fees (including fees for the title

market. It is the price that would be agreed on

have paid.

search and preparation of the sales con-

between a willing buyer and a willing seller, with

If you pay any part of the seller’s share of the

tract and deed).

neither having to buy or sell, and both having

real estate taxes (the taxes up to the date of

reasonable knowledge of the relevant facts.

•

Recording fees.

sale), and the seller did not reimburse you, add

those taxes to your basis in the home. You

•

Property transferred from a spouse. If your

Surveys.

cannot deduct them as taxes paid.

home is transferred to you from your spouse, or

•

Transfer taxes.

If the seller paid any of your share of the real

from your former spouse as a result of a divorce,

estate taxes (the taxes beginning with the date

•

your basis is the same as your spouse’s (or

Title insurance.

of sale), you can still deduct those taxes. Do not

former spouse’s) adjusted basis just before the

•

Any amount the seller owes that you

include those taxes in your basis. If you did not

transfer. Publication 504, Divorced or Separated

agree to pay, such as back taxes or inter-

reimburse the seller, you must reduce your ba-

Individuals, fully discusses transfers between

est, recording or mortgage fees, cost for

sis by the amount of those taxes.

spouses.

improvements or repairs, and sales com-

Example 1. You bought your home on

missions.

September 1. The property tax year in your area

Cost as Basis

is the calendar year, and the tax is due on

If the seller actually paid for any item for which

The cost of your home, whether you purchased

August 15. The real estate taxes on the home

you are liable and for which you can take a

it or constructed it, is the amount you paid for it,

you bought were $730 for the year and had been

deduction (such as your share of the real estate

including any debt you assumed.

paid by the seller on August 15. You did not

taxes for the year of sale), you must reduce your

Page 8

Publication 530 - Tax Information For First-Time Homeowners - 2002 Page 8

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