Why basis matters
Gain is amount realized minus adjusted basis. Understating basis overstates gain; overstating basis without records creates audit risk. Publications 523 and 551 explain cost basis, what settlement fees can be capitalized, and how improvements differ from repairs.
Improvements vs repairs
A new roof that adds value and prolongs life is typically an improvement. Repainting a room is typically a repair. See the improvements vs repairs guide. Depreciation taken while the home was rented decreases basis and feeds the nonexcludable depreciation line on the taxable-gain tool.
Year-by-year improvement log
Instead of one lump “improvements” number you cannot defend, keep a spreadsheet with year, vendor, description, and amount. Sum that sheet into the capital-improvements field here. If a project straddles repairs and improvements, split the invoice using contractor detail rather than guessing fifty-fifty. Auditor-friendly records beat round numbers.
When you inherit a property, replace purchase price with the stepped-up (or stepped-down) starting basis from estate documents, then add only post-inheritance improvements. When you receive a home incident to divorce with carryover basis, start from the transferor’s adjusted basis as Publication 551 describes, not from a contemporaneous appraisal unless the rules say otherwise.
Exporting for your preparer
After the worksheet shows an adjusted basis you trust, screenshot or hand-copy the line list into the archive described in the records guide. Preparers prefer a clear bridge from purchase closing disclosure → improvements → depreciation → adjusted basis over a single unexplained total.
Points, taxes and double-counting traps
Mortgage points you deducted as interest generally do not also increase basis. Property taxes you deduct on Schedule A do not increase basis merely because they appeared on a closing statement. Special assessments for local improvements sometimes increase basis; assessments for maintenance usually do not. When an item could fit two stories, read Publication 551 once before typing it into two worksheet fields.
Scope and limitations
Basis lines follow Publications 523 and 551 at a high level. Gift, inheritance, divorce and 1031 histories need primary guidance. SaleGain does not store receipts or certify improvement classifications; keep your own archive.
When numbers conflict between your recollection and a closing disclosure, trust the disclosure and annotate the difference in your archive.
Casualty losses and insurance recoveries
A deductible casualty loss generally reduces basis; insurance reimbursements can offset that reduction. Do not enter a casualty as a capital improvement. Publication 551 walks through the sequence — apply it before typing a single net figure into the “other adjustments” field.