👋 How to Calculate the Basis in Your Real Estate Property
Your basis is generally your total investment in the property for tax purposes.
It is used to determine your taxable gain or loss when you sell.
🧾 Step-by-Step: Calculating Your Basis
Start with:
➕ 1. Original Purchase Price
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The amount you paid to acquire the property
➕ 2. Add Acquisition Costs
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Closing costs related to the purchase (legal fees, title fees, etc.)
➕ 3. Add Capital Improvements
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Major improvements that add value or extend the life of the property, such as:
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Renovations
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Additions
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Structural upgrades
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(Routine repairs and maintenance do NOT increase basis)
➖ 4. Subtract Depreciation
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Reduce your basis by depreciation allowed or allowable over time
➖ 5. Subtract Other Adjustments
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Casualty or theft losses (if applicable)
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Certain credits or prior adjustments
⚠️ Important Note
Operating expenses (such as maintenance, utilities, or property management) are typically deducted annually, not added to or subtracted from basis.
📊 Why Basis Matters
Your taxable gain is calculated as:
Sale Price – Adjusted Basis = Taxable Gain
An incorrect basis calculation can result in:
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Overpaying or underpaying tax
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Incorrect FIRPTA withholding
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Delays in refunds