Cost Basis and Adjusted Basis of Property (eBook excerpt chapter 2.10)

A free sample from chapter 2 Accounting Fundamentals of our Landlord / Property Management in QuickBooks guide. Section 2.10  Cost Basis and Adjusted Basis of Property. We hope you’ll become a customer today, or sign up for the free e-course.

The adjusted basis is the current value of a property for tax purposes. It includes money you initially invested (the cost basis) as well as recent capital improvements to add value in a property (such as a new roof) minus depreciation every year. For an explanation of depreciation, see the next section. The adjusted basis does not include money you spend for routine repairs or maintenance.

According to IRS Publication 551, when buying real property, the basis includes:

  • Legal and recording fees
  • Abstract fees
  • Survey charges
  • Owners title insurance
  • Amounts the seller owes that you agree to pay (back taxes, interest, recording/mortgage fees, charges for improvements or repairs and sales commissions)

Basis (Cost Basis) is the cost (including cash paid, debt obligations, other property or services traded, etc.) to bring a property up to the initial condition necessary for renting (i.e. rehabbing, carpet and paint). This is your starting reference number for the tax value of a property.

Adjusted Basis is the measure of your investment including additions or permanent improvements that increase the value of the property. (Depreciation deductions decrease the adjusted basis).

Caution: Remember this book is not a replacement for professional advice. Do not take any of this information as tax or legal advice. Consult with your own competent advisors.

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