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Cost as Basis: Homeowner Tax Costs (2025 IRS Guide)

This guide covers “Cost as Basis” within homeowner tax costs. 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 530 (2025), Tax Information for Homeowners, 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

How you figure your basis depends on how you acquire your home. Generally, if you buy or build your home, your cost is your basis. If you receive your home as a gift, your basis is usually the same as the adjusted basis of the person who gave you the property. If you inherit your home from a decedent, different rules apply depending on the date of the decedent's death. Each of these topics is discussed later.

Cost as Basis

The cost of your home, whether you purchased it or constructed it, is the amount you paid for it, including any debt you assumed.

The cost of your home includes most settlement or closing costs you paid when you bought the home. If you built your home, your cost includes most closing costs paid when you bought the land or settled on your mortgage. See Settlement or closing costs, later.

Caution: If you elect to deduct the sales taxes on the purchase or construction of your home as an itemized deduction on Schedule A (Form 1040), you can't include the sales taxes as part of your cost basis in the home.

Purchase.

The basis of a home you bought is the amount you paid for it. This usually includes your down payment and any debt you assumed. The basis of a cooperative apartment is the amount you paid for your shares in the corporation that owns or controls the property. This amount includes any purchase commissions or other costs of acquiring the shares.

Construction.

If you contracted to have your home built on land that you own, your basis in the home is your basis in the land plus the amount you paid to have the home built. This includes the cost of labor and materials, the amount you paid the contractor, any architect's fees, building permit charges, utility meter and connection charges, and legal fees that are directly connected with building your home. If you built all or part of your home yourself, your basis is the total amount it cost you to build it. You can't include in basis the value of your own labor or any other labor for which you didn't pay.

Real estate taxes.

Real estate taxes are usually divided so that you and the seller each pay taxes for the part of the property tax year that each owned the home. See Real estate taxes paid at settlement or closing under State and Local Real Estate Taxes, earlier, to figure the real estate taxes you paid or are considered to have paid.

If you pay any part of the seller's share of the real estate taxes (the taxes up to the date of sale) and the seller didn't reimburse you, add those taxes to your basis in the home. You can't deduct them as taxes paid.

If the seller paid any of your share of the real estate taxes (the taxes beginning with the date of sale), you can still deduct those taxes. Don’t include those taxes in your basis. If you didn't reimburse the seller, you must reduce your basis by the amount of those taxes.

Example 1.

You bought your home on September 1, 2025. The property tax year in your area is the calendar year, and the tax is due on August 15. The real estate taxes on the home you bought were $1,275 for the year and had been paid by the seller on August 15. You didn't reimburse the seller for your share of the real estate taxes from September 1 through December 31. You must reduce the basis of your home by the $426 [(122 ÷ 365) × $1,275] the seller paid for you. You can deduct your $426 share of real estate taxes on your return for the year you purchased your home.

Example 2.

You bought your home on May 3, 2025. The property tax year in your area is the calendar year. The taxes for the previous year are assessed on January 2 and are due on May 31 and November 30. Under state law, the taxes become a lien on May 31. You agreed to pay all taxes due after the date of sale. The taxes due in 2025 for 2024 were $1,375. The taxes due in 2026 for 2025 will be $1,425.

You can't deduct any of the taxes paid in 2025 because they relate to the 2024 property tax year and you didn't own the home until 2025. Instead, you add the $1,375 to the cost (basis) of your home.

You owned the home in 2025 for 243 days (May 3 to December 31), so you can take a tax deduction on your 2026 return of $949 [(243 ÷ 365) × $1,425] paid in 2026 for 2025. You add the remaining $476 ($1,425 − $949) of taxes paid in 2026 to the cost (basis) of your home.

Settlement or closing costs.

If you bought your home, you probably paid settlement or closing costs in addition to the contract price. These costs are divided between you and the seller according to the sales contract, local custom, or understanding of the parties. If you built your home, you probably paid these costs when you bought the land or settled on your mortgage.

The only settlement or closing costs you can deduct are home mortgage interest and certain real estate taxes. You deduct them in the year you buy your home if you itemize your deductions. You can add certain other settlement or closing costs to the basis of your home.

Items added to basis.

You can include in your basis some of the settlement fees and closing costs you paid for buying your home. A fee is for buying the home if you would have had to pay it even if you paid cash for the home.

The following are some of the settlement fees and closing costs that you can include in the original basis of your home.

  • Abstract fees (abstract of title fees).

  • Charges for installing utility services.

  • Legal fees (including fees for the title search and preparation of the sales contract and deed).

  • Recording fees.

  • Surveys.

  • Transfer or stamp taxes.

  • Owner's title insurance.

  • Any amount the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, cost for improvements or repairs, and sales commissions.

If the seller actually paid for any item for which you are liable and for which you can take a deduction (such as your share of the real estate taxes for the year of sale), you must reduce your basis by that amount unless you are charged for it in the settlement.

Items not added to basis and not deductible.

Here are some settlement and closing costs that you can't deduct or add to your basis.

  1. Fire insurance premiums.

  2. Charges for using utilities or other services related to occupancy of the home before closing.

  3. Rent for occupying the home before closing.

  4. Charges connected with getting or refinancing a mortgage loan, such as:

    1. Loan assumption fees,

    2. Cost of a credit report,

    3. Fee for an appraisal required by a lender, and

    4. Mortgage insurance premiums.

Points paid by seller.

If you bought your home after April 3, 1994, you must reduce your basis by any points paid for your mortgage by the person who sold you your home.

If you bought your home after 1990 but before April 4, 1994, you must reduce your basis by seller-paid points only if you deducted them. See Points, earlier, for the rules on deducting points.

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

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.

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