The way in which the original investment in the property is determined may vary. In most cases, the basis is the cost of the asset. The cost includes sales tax and other purchase expenses. Review the list below to see other cases and how to calculate the cost base for real estate.
When calculating that gain, you have to calculate what the property “cost” you. Accountants often talk based on the costs in a property. To calculate the cost base, you start with the purchase price and add the other purchase costs of the property; then add the capital improvements you have made to the property over the years. When those improvements are structural or mechanical (rather than decorative), you can add them to your “cost” as well.
Your cost base, which is the first part of the adjusted base, is what you actually paid for your home. In most cases, the purchase price is not your cost base. When you bought your home, you probably also paid some closing costs. You can't include the costs you incurred to get a mortgage or prepaid expenses, but you can deduct legal fees, utility connection fees, title charges, transfer taxes, and registration fees, just to name a few.
Add all of these costs together and combine them with the purchase price to find your cost base.