How Do I Calculate the Cost Basis of My Property?

Your cost basis is the starting point for calculating capital gains or losses when you sell real estate. For US expats, this number plays a critical role in reporting the sale of foreign property on your US tax return.

1. Start with the Original Purchase Price

Your initial cost basis generally includes:

• The purchase price of the property
• Settlement or closing costs (title insurance, legal fees, etc.)
• Real estate taxes paid on behalf of the seller
• Any additional fees listed on your closing statement that directly relate to the purchase

Keep detailed records of all costs from your purchase documents.

2. Calculate Your Adjusted Basis

Over time, your property’s basis may change. This is called your adjusted basis. To calculate it:

Adjusted Basis = Original Cost Basis
➕ Major improvements (e.g., additions, renovations, capital upgrades)
➖ Depreciation claimed (for rental or business use)
➖ Insurance payouts for losses (e.g., from fire or theft)

Note: Repairs and maintenance (like painting or replacing a broken window) do not increase the basis.

3. Use the Adjusted Basis to Determine Capital Gains

When you sell the property, your capital gain or loss is the difference between the selling price (minus any selling expenses) and your adjusted basis.

Learn more about calculating capital gains for expats

Your Greenback accountant will guide you through this process and ensure all capital gains are properly calculated and reported, especially when foreign real estate is involved.

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