Publication 530 - Tax Information For Homeowners

Items added to basis. You can include in

more than the fair market value, your basis at

Improvements include putting a recreation

your basis the settlement fees and closing costs

the time of receipt is the same as the donor’s

room in your unfinished basement, adding an-

you paid for buying your home. A fee is for

adjusted basis.

other bathroom or bedroom, putting up a fence,

buying the home if you would have had to pay it

putting in new plumbing or wiring, installing a

Disposition basis. If the donor’s adjusted

even if you paid cash for the home.

new roof, and paving your driveway.

basis at the time of the gift is more than the FMV,

The following are some of the settlement

Amount added to basis. The amount you

your basis when you dispose of the property will

fees and closing costs that you can include in

add to your basis for improvements is your ac-

depend on whether you have a gain or a loss.

the original basis of your home.

tual cost. This includes all costs for material and

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If using the donor’s adjusted basis results

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labor, except your own labor, and all expenses

Abstract fees (abstract of title fees).

in a loss when you sell the home, you

related to the improvement. For example, if you

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Charges for installing utility services.

must use the fair market value of the

had your lot surveyed to put up a fence, the cost

home at the time of the gift as your basis.

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of the survey is a part of the cost of the fence.

Legal fees (including fees for the title

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You also must add to your basis state and

search and preparation of the sales con-

If using the fair market value results in a

local assessments for improvements such as

tract and deed).

gain, you have neither a gain nor a loss.

streets and sidewalks if they increase the value

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Recording fees.

of the property. These assessments are dis-

Donor’s adjusted basis equal to or less than

•

cussed earlier under Real Estate Taxes.

Surveys.

the FMV. If someone gave you your home

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Repairs versus improvements. A repair

Transfer taxes.

after 1976 and the donor’s adjusted basis, when

keeps your home in an ordinary, efficient operat-

it was given to you, was equal to or less than the

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Owner’s title insurance.

ing condition. It does not add to the value of your

fair market value, your basis at the time of re-

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home or prolong its life. Repairs include repaint-

Any amount the seller owes that you

ceipt is the same as the donor’s adjusted basis,

ing your home inside or outside, fixing your gut-

agree to pay, such as back taxes or inter-

plus the part of any federal gift tax paid that is

ters or floors, fixing leaks or plastering, and

est, recording or mortgage fees, cost for

due to the net increase in value of the home.

replacing broken window panes. You cannot

improvements or repairs, and sales com-

Part of federal gift tax due to net increase

deduct repair costs and generally cannot add

missions.

in value. Figure the part of the federal gift tax

them to the basis of your home.

paid that is due to the net increase in value of the

However, repairs that are done as part of an

If the seller actually paid for any item for which

home by multiplying the total federal gift tax paid

extensive remodeling or restoration of your

you are liable and for which you can take a

by a fraction. The numerator (top part) of the

home are considered improvements. You add

deduction (such as your share of the real estate

fraction is the net increase in the value of the

them to the basis of your home.

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

home, and the denominator (bottom part) is the

basis by that amount unless you are charged for

Records to keep. You can use Table 4 (at

value of the home for gift tax purposes after

it in the settlement.

the end of the publication) as a guide to help you

reduction for any annual exclusion and marital

Items not added to basis and not deducti-

keep track of improvements to your home. Also

or charitable deduction that applies to the gift.

ble. Here are some settlement and closing

see Keeping Records, later.

The net increase in the value of the home is its

costs that you cannot deduct or add to your

fair market value minus the adjusted basis of the

Energy conservation subsidy. If a public

basis.

donor.

utility gives you (directly or indirectly) a subsidy

Publication 551 gives more information, in-

1. Fire insurance premiums.

for the purchase or installation of an energy

cluding examples, on figuring your basis when

conservation measure for your home, do not

2. Charges for using utilities or other services

you receive property as a gift.

include the value of that subsidy in your income.

related to occupancy of the home before

You must reduce the basis of your home by that

closing.

value.

Inheritance

3. Rent for occupying the home before clos-

An energy conservation measure is an in-

ing.

stallation or modification primarily designed to

Your basis in a home you inherited is generally

reduce consumption of electricity or natural gas

4. Charges connected with getting or refi-

the fair market value of the home on the date of

or to improve the management of energy de-

nancing a mortgage loan, such as:

the decedent’s death or on the alternate valua-

mand.

tion date if the personal representative for the

a. Loan assumption fees,

estate chooses to use alternative valuation.

b. Cost of a credit report, and

If an estate tax return was filed, your basis is

Keeping Records

generally the value of the home listed on the

c. Fee for an appraisal required by a

estate tax return.

lender.

If an estate tax return was not filed, your

Keeping full and accurate records is

basis is the appraised value of the home at the

vital to properly report your income and

Points paid by seller. If you bought your

decedent’s date of death for state inheritance or

expenses, to support your deductions

home after April 3, 1994, you must reduce your

RECORDS

transmission taxes. Publication 551 and Publi-

and credits, and to know the basis or adjusted

basis by any points paid for your mortgage by

cation 559, Survivors, Executors, and Adminis-

basis of your home. These records include your

the person who sold you your home.

trators, have more information on the basis of

purchase contract and settlement papers if you

If you bought your home after 1990 but

inherited property.

bought the property, or other objective evidence

before April 4, 1994, you must reduce your basis

if you acquired it by gift, inheritance, or similar

by seller-paid points only if you deducted them.

Adjusted Basis

means. You should keep any receipts, canceled

See Points, earlier, for the rules on deducting

checks, and similar evidence for improvements

points.

While you own your home, various events may

or other additions to the basis. In addition, you

take place that can change the original basis of

should keep track of any decreases to the basis

your home. These events can increase or de-

Gift

such as those listed in Table 3.

crease your original basis. The result is called

adjusted basis. See Table 3, earlier, for a list of

To figure the basis of property you receive as a

How to keep records. How you keep records

some of the items that can adjust your basis.

gift, you must know its adjusted basis (defined

is up to you, but they must be clear and accurate

later) to the donor just before it was given to you,

and must be available to the IRS.

Improvements. An improvement materially

its FMV at the time it was given to you, and any

adds to the value of your home, considerably

How long to keep records. You must keep

gift tax paid on it.

prolongs its useful life, or adapts it to new uses.

your records for as long as they are important for

You must add the cost of any improvements to

Donor’s adjusted basis is more than FMV. If

meeting any provision of the federal tax law.

the basis of your home. You cannot deduct

someone gave you your home and the donor’s

Keep records that support an item of income,

adjusted basis, when it was given to you, was

these costs.

a deduction, or a credit appearing on a return

Publication 530 (2008)

Page 10

Publication 530 - Tax Information For Homeowners - 2008 Page 10

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