Cost Basis

Tax basis is used to determine gain or loss for income tax purposes. Cost basis means using the amount originally paid for the property to calculate the tax basis. Generally, the tax basis will equal the purchase price, plus the cost of capital improvements, less depreciation. Subtract this amount from the sale price of the property, and you have the amount the property has gained in value. The seller may owe capital gains tax on this amount.

Once the property is transferred upon the owner's death, it is revalued as of the date of death; this is called the stepped‐up basis for Federal Income Tax purposes.