The Listen to Lawrence Letter: How to calculate your home’s TAX BASIS

October 25, 2023
October 5, 2023 • Volume 4 Issue 179
Let’s get down to the basis…read on:


Dear Lawrence,

I have always looked forward to reading your answers to other people’s questions. Now I have one of my own. The deed to my house, which was originally in my name, was changed to the name of my trust several years ago. When the trust sells the house, is the cost basis the original price I paid for the house in 1980, the estimated value at the time the deed was renamed, or the price at the time of the sale? Thank you for your always-valuable information!


Almost every irrevocable Medicaid trust I have created and funded was funded with a home. The question of basis and capital gains tax is central to understanding the benefits of creating one of these trusts.

The bottom line is that your tax basis is equal to what you paid for the house plus capital improvements.  For example, if you paid $50,000 for your house and put a new roof on it for $20,000 (and not other improvements), then your basis would now be $70,000. If you transfer the house to anyone without consideration (by gift), then the new owner (donee) gets your same $70,000 basis. The value at the time of the transfer or sale is irrelevant. This is called “carryover tax basis.” Any amount the house is sold for exceeding the basis is subject to capital gains tax, subject to any exemptions, such as your $250,000 per person capital gain exclusion (which you retain in the irrevocable trust).


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