Real Estate Cost Basis
If you own real estate, it's important to know your cost basis. It's used to calculate your gain or loss when you sell the property. Most people forget all of the improvements they have put into their property over time and therefore don’t have an accurate idea of what their true cost basis is. That’s why it’s extremely important to track it closely over time. You can use this free Real Estate Cost Basis Spreadsheet template to help you calculate and track your cost basis over time.
How to Calculate Your Real Estate Cost Basis
To calculate your cost basis, you'll need to know your purchase price, plus any closing costs, plus any improvements you’ve made. You can find your purchase price and closing costs on your closing documents. Remember, your closing costs should include things like your loan origination fee, your appraisal fee, your title insurance and any other fees you had to pay to purchase the home.
After the original purchase, you will likely incur other expenses from repairs or improvements to the home over time. Be sure to keep track of all of these expenses since they should be added to your overall cost basis.
What Is a Cost Basis?
Your cost basis is used to calculate your gain or loss when you sell the property. If you sell your property for more than your cost basis, you'll have a capital gain. If you sell your property for less than your cost basis, you'll have a capital loss.
Why Is Knowing Your Cost Basis Important?
Knowing your cost basis is important because it's used to calculate your gain or loss when you sell the property and helps you figure out how much you should list your property for. If you don't know your cost basis, you may end up paying more taxes than you owe or listing the home for a lower price than you should.
How to Built a Real Estate Cost Basis Spreadsheet
The first item is easy, just list your purchase price. Then you want to list all of your acquisition costs, which can include your loan origination fee, your appraisal fee, your title insurance, and more. In a separate tab, create a list of all of the repairs or improvements you’ve made to your home, such as kitchen renovation, garage insulation, or roof replacement.
Then, create a summary section that adds together the purchase price, the acquisition costs and all of these improvements. This is your total cost basis and the amount of money you would need to sell your home for to make money or incur a capital gain.