Publication 530 - Tax Information For Homeowners

Table 3. Adjusted Basis

connection charges, and legal fees that are di-

rectly connected with building your home. If you

This table lists examples of some items that generally will increase or decrease

built all or part of your home yourself, your basis

your basis in your home. It is not intended to be all-inclusive.

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

cannot include the value of your own labor or

Increases to Basis

Decreases to Basis

any other labor for which you did not pay.

Real estate taxes. Real estate taxes are usu-

Improvements:

•

Insurance or other reimbursement for

ally divided so that you and the seller each pay

•

Putting an addition on your home

casualty losses

taxes for the part of the property tax year that

•

Replacing an entire roof

Deductible casualty loss not covered

each owned the home. See the earlier discus-

•

Paving your driveway

by insurance

sion of Real estate taxes paid at settlement or

•

closing, under Real Estate Taxes, to figure the

Installing central air conditioning

Payments received for easement or

•

real estate taxes you paid or are considered to

right-of-way granted

Rewiring your home

•

have paid.

Depreciation allowed or allowable if

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

home is used for business or rental

real estate taxes (the taxes up to the date of

Assessments for local improvements

purposes

•

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

(see Assessments for local benefits, under

Value of subsidy for energy

those taxes to your basis in the home. You

What You Can and Cannot Deduct)

conservation measure excluded from

cannot deduct them as taxes paid.

income

Amounts spent to restore damaged property

If the seller paid any of your share of the real

estate taxes (the taxes beginning with the date

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

include those taxes in your basis. If you did not

1. Your modified adjusted gross income is

decedent, the fair market value at the date of the

reimburse the seller, you must reduce your ba-

$95,000 or more ($170,000 or more if mar-

decedent’s death is generally your basis. Each

sis by the amount of those taxes.

ried filing jointly).

of these topics is discussed later.

2. You are eligible to claim the District of Co-

Fair market value. This is the price at which

Example 1. You bought your home on Sep-

lumbia first-time homebuyer credit for 2008

property would change hands between a willing

tember 1. The property tax year in your area is

or any prior year. See Form 8859.

buyer and a willing seller, neither being under

the calendar year, and the tax is due on August

any compulsion to buy or sell and who both have

15. The real estate taxes on the home you

3. Your home financing comes from

a reasonable knowledge of all the necessary

bought were $1,275 for the year and had been

tax-exempt mortgage revenue bonds.

facts.

paid by the seller on August 15. You did not

4. You are a nonresident alien.

reimburse the seller for your share of the real

Property transferred from a spouse. If your

estate taxes from September 1 through Decem-

5. Your home is located outside the United

home is transferred to you from your spouse, or

ber 31. You must reduce the basis of your home

States.

from your former spouse as a result of a divorce,

by the $425 [(122 ÷ 366) × $1,275] the seller

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

6. You sell the home, or it ceases to be your

paid for you. You can deduct your $425 share of

former spouse’s) adjusted basis just before the

main home, before the end of 2008.

real estate taxes on your return for the year you

transfer. Publication 504, Divorced or Separated

purchased your home.

7. You acquired your home by gift or inheri-

Individuals, fully discusses transfers between

tance.

spouses.

Example 2. You bought your home on May

8. You acquired your home from a related

3, 2008. The property tax year in your area is the

person.

calendar year. The taxes for the previous year

Cost as Basis

are assessed on January 2 and are due on May

For more information and to claim the credit

31 and November 30. Under state law, the taxes

see, Form 5405, First-Time Homebuyer Credit.

The cost of your home, whether you purchased

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

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

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

including any debt you assumed.

2008 for 2007 were $1,375. The taxes due in

The cost of your home includes most settle-

Basis

2009 for 2008 will be $1,425.

ment or closing costs you paid when you bought

You cannot deduct any of the taxes paid in

the home. If you built your home, your cost

2008 because they relate to the 2007 property

Basis is your starting point for figuring a gain or

includes most closing costs paid when you

tax year and you did not own the home until

loss if you later sell your home, or for figuring

bought the land or settled on your mortgage.

2008. Instead, you add the $1,375 to the cost

depreciation if you later use part of your home

If you elect to deduct the sales taxes on

(basis) of your home.

for business purposes or for rent.

the purchase or construction of your

While you own your home, you may add

You owned the home in 2008 for 243 days

home as an itemized deduction on

CAUTION

certain items to your basis. You may subtract

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

Schedule A (Form 1040), you cannot include the

deduction on your 2009 return of $946 [(243 ÷

certain other items from your basis. These items

sales taxes as part of your cost basis in the

are called adjustments to basis and are ex-

366) × $1,425] paid in 2009 for 2008. You add

home.

the remaining $479 ($1,425 − $946) of taxes

plained later under Adjusted Basis.

It is important that you understand these

paid in 2009 to the cost (basis) of your home.

Purchase. The basis of a home you bought is

terms when you first acquire your home be-

the amount you paid for it. This usually includes

Settlement or closing costs. If you bought

cause you must keep track of your basis and

your down payment and any debt you assumed.

your home, you probably paid settlement or

adjusted basis during the period you own your

The basis of a cooperative apartment is the

closing costs in addition to the contract price.

home. You also must keep records of the events

amount you paid for your shares in the corpora-

These costs are divided between you and the

that affect basis or adjusted basis. See Keeping

tion that owns or controls the property. This

seller according to the sales contract, local cus-

Records, later.

amount includes any purchase commissions or

tom, or understanding of the parties. If you built

other costs of acquiring the shares.

Figuring Your Basis

your home, you probably paid these costs when

you bought the land or settled on your mortgage.

Construction. If you contracted to have your

How you figure your basis depends on how you

home built on land that you own, your basis in

The only settlement or closing costs you can

acquire your home. If you buy or build your

the home is your basis in the land plus the

deduct are home mortgage interest and certain

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

amount you paid to have the home built. This

real estate taxes. You deduct them in the year

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

includes the cost of labor and materials, the

you buy your home if you itemize your deduc-

the adjusted basis of the person who gave you

amount you paid the contractor, any architect’s

tions. You can add certain other settlement or

the property. If you inherit your home from a

fees, building permit charges, utility meter and

closing costs to the basis of your home.

Publication 530 (2008)

Page 9

Publication 530 - Tax Information For Homeowners - 2008 Page 9

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