What is basis in real estate?
Andrew Ramirez
Published Mar 05, 2026
Basis is generally the amount of your capital investment in property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any gain or loss on the sale, exchange, or other disposition of the property. In most situations, the basis of an asset is its cost to you.
How do you find the basis of real property?
To find the adjusted basis:
- Start with the original investment in the property.
- Add the cost of major improvements.
- Subtract the amount of allowable depreciation and casualty and theft losses.
What increases basis of real property?
The basis of property you buy is usually its cost. Your original basis in property is adjusted (increased or decreased) by certain events. If you make improvements to the property, increase your basis. If you take deductions for depreciation or casualty losses, reduce your basis.
How is the basis of a property calculated?
The basis is the purchase price plus related realtor commissions. The basis is also called the cost basis. The basis is used to calculate your gain or loss for tax purposes. If your sale price is above your basis, you have a gain.
What does starting basis mean in real estate?
In fact, many CPAs refer to it as “Starting Basis”. It represents what you initially paid for your property, including certain extra costs you incurred when buying the property like title insurance, appraisal fees, escrow fees, lawyer fees, document fees.
What does adjusted basis mean in real estate?
In simplest terms, “Basis” is the amount your property is worth for tax purposes. Where the confusion comes in is that the Basis changes over time, and thereby becomes known as “Adjusted Basis”.
When to use FMV or adjusted basis for property?
If the FMV of the property at the time of the gift is less than the donor’s adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property. Your basis for figuring a gain is the same as the donor’s adjusted basis, plus or minus any required adjustments to basis while you held the property.
