Of particular interest to buyer's of San Diego, Ca homes is the original basis (OB) - purchase price plus allowable costs - of the residence. Someday the homeowner will want to dispose of the home, and the higher the basis, the lower the gain, resulting in lower taxes. As previously mentioned, the OB is equal to the purchase price (PP) plus the buying expenses (BE): OB = PP + BE Original basis = Purchase price + Buying expenses

Building

For taxpayers who build their own home, basis would be the total cost of building the home. This would include cost of the land, legal fees, permits, architectural fees, materials and so forth. The taxpayer would not include the value of his or her own labor if no compensation were actually paid for the labor.

EXAMPLE: Five years ago Ms. Bell decided to build her own personal residence, and she purchased the land for $20,000. This year she paid $3,000 for permits and plans. Materials cost her $77,000. Bell's basis in her new home is the total of these expenses, or $100,000.

Inheriting

For the taxpayer who inherits a home, the basis would be the market value at the time of the decedent's death. This is called the stepped-up basis. An alternative valuation date also can be used; it is beyond the scope of this text, but the agent should be aware that the method exists.

EXAMPLE: Mr. Hanson died and left his home to his son. His basis in the home was $10,000, but at the time of death it had a fair market value of $150,000. The son's basis in the home is $150,000.

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