calculating cost basis

Ways to Calculate Cost Basis for Inherited Property

calculating cost basis

Introduction: the main use of calculating the cost basis of real estate is to estimate the profit earned by you after selling a property. The term “cost basis” is the cost price of an inherited property which is not a part of your option because you never made a purchase of that real estate. So there are some special rules to determine the cost basis of the inherited real estate which is based on decedent death.

Step 1

The very first thing which a person has to do is make a note of the date on which decedent died. If decedent died in 2010, then the cost basis will be the original cost of the real estate bought by decedent. This cost is a step up cost basis if he inherited the property. For surviving spouses, the total step up basis of $1.3 million or $4.3 million increases the cost basis. As an example, if the cost basis of owners’ house was $250,000, but the property appreciated to $2.5 million, your cost basis would be $250,000, plus $1.3 million. This is assuming you elected to apply the entire cost basis addition to real estate, and were not a surviving spouse.

Step 2

Second step is to contact the executor of the will and ask whether he used the alternative date to determine the cost basis. In all years except 2010, executors may elect the date after 6 months of death of decedent death. And if in case the alternative date is not used then the date of death of the decedent is used.

Step 3

Third thing which you need to do is contact a real estate appraiser and request for the appraisal of your property on that date. The appraisal tells you the current rate of your property on that particular date which serves as the cost basis which is necessary to know.

 

Understanding the term “cost basis”?

It is just the cost of property which is adjusted either by an increase or decrease. For example, when you purchase maybe 100 shares of any company at $44-plus and a $ 10 commission, the cost basis will be calculated as $4,410.

Ways to Invest Tax Free

Does it relate to IRAs?

Trading the profits and losses are not relevant when we consider a tax-deferred account.

What’s new?

It is important that a cost file should be reported to IRS and you by your broker.

Sales proceeds are also been in use for years. Purchase price is reported in 1099 – B.

The stocks purchased after 1st January 2011, bonds purchased post January 1, 2013 and mutual funds that were purchased after January 1, 2012, are mandated on cost report.

Is this to make tax computation easier?

No, this mandating doesn’t make it easy to file tax but make it easy for IRS to get the taxes.

Do I need to pay more?

It s estimated that the government will collect another $6.7 billion in capital gain taxes over 10 years term.

How does it apply to securities bought before those start dates?

If you have purchased securities before the given dates then, you have to contact your broker who will have the list of dates before the new dates and then, this data can be used to fill the profits & losses, you had from your securities. Another fact is that the cost may not get recorded with the broker and IRS does not reduce your responsibility of reporting it correctly. You have to give explanations regarding your number if you are getting is audited by your auditor.

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