Basis Adjustments—Details and Exceptions: Home Sale Taxes (2025 IRS Guide)

This guide covers “Basis Adjustments—Details and Exceptions” within home sale taxes. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 523 (2025), Selling Your Home, published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

To figure the gain or loss on the sale of your main home, you must know the selling price, the amount realized, and the adjusted basis. Subtract the adjusted basis from the amount realized to get your gain or loss.

A positive number indicates a gain; a negative number indicates a loss.

Certain events during your ownership, such as use of your home for business purposes or your making improvements to it, can affect your gain or loss. They are explained in this section.

See Worksheet 2, later, for steps you should follow to figure your gain or loss.

Basis Adjustments—Details and Exceptions

You should include many, but not all, costs associated with the purchase and maintenance of your home in the basis of your home. For more information on determining basis, see Pub. 551, Basis of Assets.

Fees and Closing Costs

Some settlement fees and closing costs you can include in your basis are:

• Abstract fees (abstract of title fees),

• Charges for installing utility services,

• Legal fees (including fees for the title search and preparing the sales contract and deed),

• Recording fees,

• Survey fees,

• Transfer or stamp taxes, and

• Owner’s title insurance.

Settlement costs don’t include amounts placed in escrow for the future payment of items such as taxes and insurance.

Some settlement fees and closing costs you can’t include in your basis are:

• Fire and casualty insurance premiums,

• Rent for occupancy of the house before closing,

• Charges for utilities or other services related to occupancy of the house before closing,

• Any fee or cost that you deducted as a moving expense (allowed for certain fees and costs before 1994),

• Charges connected with getting a mortgage loan, such as:

  1. Mortgage insurance premiums (including funding fees connected with loans guaranteed by the Department of Veterans Affairs),

  2. Loan assumption fees,

  3. Cost of a credit report,

  4. Fee for an appraisal required by a lender,

  5. Points (discount points, loan origination fees), and

• Fees for refinancing a mortgage.

Construction.

If you contracted to have your house built on the land you own, your basis is:

• The cost of the land, plus

• The amount it cost you to complete the house, including:

  1. The cost of labor and materials,

  2. Any amounts paid to a contractor,

  3. Any architect’s fees,

  4. Building permit charges,

  5. Utility meter and connection charges, and

  6. Legal fees directly connected with building the house.

Your cost includes your down payment and any debt such as a first or second mortgage or notes you gave the seller or builder. It also includes certain settlement or closing costs. In addition, you must generally reduce your basis by points the seller paid you.

If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Don’t include in the cost of the house:

• The value of your own labor, or

• The value of any other labor for which you didn’t pay.

Costs owed by the seller that you paid.

You can include in your basis any amounts the seller owes that you agree to pay (as long as the seller doesn’t reimburse you), such as:

• Any real estate taxes owed up through the day before the sale date,

• Back interest owed by the seller,

• The seller‘s title recording or mortgage fees,

• Charges for improvements or repairs that are the seller’s responsibility (for example, lead paint removal), and

• Sales commissions (for example, payment to the seller‘s real estate agent).

Improvements

Improvements add to the value of your home, prolong its useful life, or adapt it to new uses. You add the cost of additions and improvements to the basis of your property.

The following chart lists some examples of improvements.

Examples of Improvements That Increase Basis

Repairs done as part of larger project.

You can include repair-type work if it is done as part of an extensive remodeling or restoration job. For example, replacing broken windowpanes is a repair, but replacing the same window as part of a project of replacing all the windows in your home counts as an improvement.

Examples of improvements you CAN’T include in your basis.

You can’t include:

• Any costs of repairs or maintenance that are necessary to keep your home in good condition but don’t add to its value or prolong its life. Examples include painting (interior or exterior), fixing leaks, filling holes or cracks, or replacing broken hardware;

• Any costs of any improvements that are no longer part of your home (for example, wall-to-wall carpeting that you installed but later replaced);

• Any costs of any improvements with a life expectancy, when installed, of less than 1 year.

Exception.

The entire job is considered an improvement if items that would otherwise be considered repairs are done as part of an extensive remodeling or restoration of your home. For example, if you have a casualty and your home is damaged, increase your basis by the amount you spend on repairs that restore the property to its pre-casualty condition. However, you must adjust your basis by any amount of insurance reimbursement you receive or expect to receive for casualty losses. See Worksheet 2, line 5.

Energy credits and subsidies.

If you included in your basis the cost of any energy-related improvements (such as a solar energy system) and you received any tax credits or subsidies related to those improvements, you must subtract those credits or subsidies from your total basis. Examples include:

• 1977–1987: Credit for home energy improvements;

• 1992–present: Direct or indirect subsidy from a public utility for installations or modifications aimed at lowering a home’s electricity or natural gas usage or better managing its energy demand;

• 2006–2025: Credit for certain residential clean energy (previously the residential energy efficient property credit), for expenditures made for qualified energy property, such as qualified solar electric, solar water heating, fuel cell, small wind energy, and geothermal heat pump property; and battery storage technology;

• 2006–2007, 2009–2025: Credit for qualified energy efficiency home improvements (previously the nonbusiness property credit), generally for expenditures or property placed in service for exterior windows, skylights, exterior doors, heat pumps, heat pump water heaters, biomass stoves, and biomass boilers. A product identification number is required in 2025; and

• 2023–2025: Credit for home energy audits, involving an inspection and written report for a main home to identify cost-effective energy efficiency improvements. Beginning January 1, 2024, the audits must be conducted and prepared by (or under the supervision of) a certified home energy auditor.

See the Instructions for Form 5695 for detailed information on improvements and credit percentages in specific tax years.

Home Acquired Through a Trade

Traded for another home.

When you trade your home for a new one, you are treated as having sold your home and purchased a new one. Your sale price is the trade-in value you received for your home plus any mortgage or other debt that the person taking your home as a trade-in assumed (took over) from you as part of the deal.

Traded for other property.

If you paid for your home by trading other property for it, the starting basis of your home is usually the fair market value of the property you traded.

Home Foreclosed, Repossessed, or Abandoned

If your home was foreclosed on, repossessed, or abandoned, you may have ordinary income, gain, or loss. See Pub. 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments.

If you used part of your home for business or rental purposes, see Foreclosures and Repossessions in chapter 1 of Pub. 544, for examples of how to figure gain or loss.

Home Destroyed or Condemned

You have a disposition when your home is destroyed or condemned and you receive other property or money in payment, such as insurance or a condemnation award. This is treated as a sale and you may be able to exclude all or part of any gain that you have. If your home was destroyed, see Pub. 547. If your home was condemned, see Pub. 544.

Home Received in Divorce

Home acquired after July 18, 1984.

If your former spouse was the sole owner, your starting basis is the same as your former spouse’s adjusted basis just before you received the home. If you co-owned the home with your spouse, add the adjusted basis of your spouse’s half-share in the home to the adjusted basis of your own half-share to get your starting basis. (In most cases, the adjusted basis of the two half-shares will be the same.) The rules apply whether or not you received anything in exchange for the home.

Home acquired on or before July 18, 1984.

Your starting basis will usually be the home’s fair market value at the time you acquired it from your spouse or ex-spouse.

For more information, see Pub. 504, Divorced or Separated Individuals. If you or your spouse or ex-spouse lived in a community property state, see Pub. 555, Community Property.

Home Received as a Gift

If you received your home as a gift, you should keep records of the date you received it. Record the adjusted basis of the donor at the time of the gift and the fair market value of the home at the time of the gift. Also ask if the donor paid any gift tax. As a general rule, you will use the donor’s adjusted basis at the time of the gift as your basis. However, see Table 1 below to determine if any exceptions to this rule listed in the “IF” column apply.

Table 1. Exceptions to Using a Donor’s Adjusted Basis for a Home Received as a Gift

Home Inherited

Home acquired from a decedent who died before or after 2010.

If you inherited your home from a decedent who died before or after 2010, your basis is the fair market value of the property on the date of the decedent‘s death (or the later alternate valuation date chosen by the personal representative of the estate). If a federal estate tax return (Form 706) was filed or required to be filed, the value of the property listed on the estate tax return is your basis. If Form 706 didn’t have to be filed, your basis in the home is the same as its appraised value at the date of death, for purposes of state inheritance or transmission taxes. See section 1014 for details.

Surviving spouse.

If you are a surviving spouse and you owned your home jointly, your basis in the home will change. The new basis for the interest your spouse owned will be its fair market value on the date of death (or alternate valuation date). The basis in your interest will remain the same. Your new basis in the home is the total of these two amounts.

If you and your spouse owned the home either as tenants by the entirety or as joint tenants with right of survivorship, you will each be considered to have owned one-half of the home.

Example.

Your jointly owned home (owned as joint tenants with right of survivorship) had an adjusted basis of $50,000 on the date of your spouse’s death, and the fair market value on that date was $100,000. Your new basis in the home is $75,000 ($25,000 for one-half of the adjusted basis plus $50,000 for one-half of the fair market value).

Community property.

In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin), each spouse is usually considered to own half of the community property. When either spouse dies, the total fair market value of the community property becomes the basis of the entire property, including the part belonging to the surviving spouse. For this rule to apply, at least half the value of the community property interest must be includible in the decedent’s gross estate, whether or not the estate must file a return.

For more information about community property, see Pub. 555, Community Property.

Inherited property in 2010.

If you are selling a home in which you acquired an interest from a decedent who died in 2010, see Pub. 4895, Tax Treatment of Property Acquired From a Decedent Dying in 2010, available at IRS.gov/pub/irs-prior/p4895--2011.pdf, to determine your basis.

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

• Publication 523 (2025), Selling Your Home: Figuring Gain or Loss — Basis Adjustments—Details and Exceptions — Internal Revenue Service; 2025 edition.

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.