Adjusted basis is your basis increased or decreased by certain amounts.
Increases to basis: These include any additions and other improvements that have a useful life of more than 1 year, special assessments for local improvements, and amounts you spent after a casualty to restore damaged property. Your home’s adjusted basis does not include the cost of any improvements that are replaced and are no longer part of the home nor does it include repairs. Examples of additions and other improvements:
Heating & Air Conditioning
Central air conditioning
Lawn & Grounds
Storm windows, doors
Soft water system
Filtration systemInterior Improvements
Pipes and duct work
Decreases to basis: These include, for example, any gain you postponed from the sale of a previous home before May 7, 1997, deductible casualty losses, depreciation allowed or allowable if you used your home for business or rental purposes, etc.
- Excluding the Gain
- You may qualify to exclude from your income all or part of any gain from the sale of your main home. This means that, if you qualify, you will not have to pay tax on the gain up to the Maximum Exclusion amount. To qualify, you must meet the ownership and use tests described below.
- Maximum Exclusion: You can exclude up to $250,000 of the gain on the sale of your main home if all of the following are true: you meet the ownership test, you meet the use test and during the 2-year period ending on the date of the sale, you did not exclude gain from the sale of another home.
- If you and another person owned the home jointly but file separate returns, each of you can exclude up to $250,000 of gain from the sale of your interest in the home if each of you meets the three conditions just listed.
- You may be able to exclude up to $500,000 of the gain on the sale of your main home if you are married and file a joint return.
- Ownership and Use Tests: To claim the exclusion, you must meet the ownership and use tests. This means that during the 5-year period ending on the date of the sale, you must have: owned the home for at least 2 years (the ownership test), and lived in the home as your main home for at least 2 years (the use test).
- If you owned and lived in the property as your main home for less than 2 years, you can still claim an exclusion in some cases. The maximum amount you may be able to exclude will be reduced.
- The required 2 years of ownership and use during the 5-year period ending on the date of the sale do not have to be continuous.