Cost Basis

Your cost basis is the starting point for calculating a capital gain: the gain is your sale proceeds minus your basis, so a higher basis means a smaller taxable gain. For a home, the basis begins with the purchase price plus the closing costs you paid to buy it, such as title fees and transfer taxes.

Over time your basis is adjusted. Adding the cost of capital improvements, such as a renovation or an addition, raises it and is called your adjusted basis; ordinary repairs and maintenance do not count. Keeping records of what you paid and what you spent on improvements is how you avoid overstating your gain, and therefore your tax, when you sell. The home sale capital gains calculator builds the adjusted basis from these pieces.