How to Find Your Tax Basis for Property and Investments

To find your tax basis for property and investments, start with what you paid for the asset, then adjust that figure upward for capital improvements and downward for depreciation and certain other items. If you didn’t buy the asset, the starting number changes: inherited property generally uses the fair market value on the date of death, gifted property uses the donor’s basis, and property received in a divorce carries over the transferring spouse’s basis. Getting the number right matters because basis controls how much gain or loss you report when you sell, and an underreported gain can trigger the 20% accuracy-related penalty.¹

Property You Bought

The general rule for anything you purchase is that your basis equals your cost.² What counts as “cost” depends on the asset.

Stocks and Other Securities

For securities, cost means the share price plus commissions and transfer taxes charged to execute the trade. Buy 100 shares at $50 with a $10 commission and your basis is $5,010. Your brokerage tracks this for covered securities and reports it in Form 1099-B.³

A stock split doesn’t change your total basis, only the per-share figure. If you owned 100 shares at a total basis of $1,500 and the company runs a 2-for-1 split, you now hold 200 shares at $7.50 each.⁴ Reinvested dividends are different. Each reinvestment is a separate purchase at that day’s price, with its own basis and its own acquisition date. Years of automatic reinvestment can leave you with dozens of small lots to track.

Real Estate

Basis in real property starts with the contract price and includes several settlement costs: legal fees, title search charges, recording fees, surveys, transfer taxes, and owner’s title insurance.⁵

Loan-related costs do not go into basis. Mortgage points, loan origination fees, mortgage insurance premiums, lender-required appraisal fees, and loan assumption fees are all excluded. Casualty insurance premiums, prepaid rent, and amounts placed in escrow for future taxes and insurance are excluded too.⁵ The closing disclosure (or older HUD-1 statement) is the document that shows what you actually paid at settlement.

Adjustments That Change Your Basis Over Time

Basis rarely stays at the original purchase figure. Federal law requires upward adjustments for certain expenditures and downward adjustments for certain deductions.⁶

Capital improvements increase basis. These are projects that materially extend the property’s life, add value, or adapt the property to a new use: a new roof, an addition, central HVAC, a kitchen remodel. Routine maintenance like patching a leak or repainting does not qualify. The test is whether the work made the property more valuable or simply kept it functional.

Depreciation reduces basis, and this is where owners of rental or business property get caught. Depreciation cuts your basis whether or not you actually claimed it, because the statute uses the phrase “allowed or allowable.”⁶ If you bought a rental for $300,000 and $80,000 of depreciation was allowable over your ownership, your adjusted basis is $220,000, even if you never took the deductions on your returns. And when you sell, the portion of the gain attributable to depreciation claimed on real property is taxed at a maximum federal rate of 25%, rather than the lower long-term capital gains rates that apply to the remaining appreciation.

Property You Inherited

Inherited property doesn’t carry over the decedent’s cost. Instead, its basis resets to fair market value on the date of death.⁷ A home a parent bought for $80,000 in 1985 and worth $450,000 at death gives the heir a basis of $450,000. The built-up appreciation is never taxed as income.

To document the date-of-death value, use a brokerage statement or financial data service closing price for publicly traded securities, a professional appraisal for real estate, and a formal valuation for a closely held business. If an estate tax return (Form 706) was filed, the values reported there are your starting reference.

Alternate Valuation Date

The estate’s executor can elect to value all estate assets six months after the date of death rather than on the date of death itself. The election is only available if it reduces both the total estate value and the estate tax owed, and it becomes irrevocable once made.⁸ Property sold or distributed before the six-month mark is valued as of the date it left the estate. Confirm with the executor which date was used, because it directly sets your basis.

Community Property

In community property states, both halves of jointly owned marital property receive a stepped-up basis when one spouse dies, not just the deceased spouse’s half. A couple’s home worth $600,000 with a combined basis of $200,000 gives the surviving spouse a new basis of $600,000 in the whole property. At least half of the community property interest must be includible in the deceased spouse’s gross estate for the full step-up to apply.⁹

Consistent Basis Rule

When an estate is large enough to require a federal estate tax return, the executor files Form 8971 and sends each beneficiary a statement of the values reported to the IRS. You cannot claim a basis higher than the value reported on the estate tax return for the same property.¹⁰

Holding Period

Inherited property is treated as held for more than one year no matter how quickly you sell. Any gain qualifies for long-term capital gains rates.¹¹

Property You Received as a Gift

When someone gives you property, you generally take the donor’s basis rather than a fresh figure based on current value. If your parents bought stock for $5,000 twenty years ago and give it to you when it’s worth $50,000, your basis is $5,000.¹² You also tack on the donor’s holding period, so long-term versus short-term treatment reflects both your ownership and theirs.¹¹

The Dual-Basis Rule

If the gift’s fair market value on the date of the gift is lower than the donor’s basis, two figures apply. To calculate a gain on later sale, use the donor’s basis. To calculate a loss, use the lower fair market value on the gift date. Sell at a price between the two and you report no gain and no loss.¹² You need both numbers to apply the rule, so ask the donor for their original records and pin down the value on the day the gift was made.

Gift Tax Paid by the Donor

If the donor paid federal gift tax on the transfer, part of that tax gets added to your basis. The addition equals the share of the gift tax corresponding to the asset’s appreciation while the donor held it.¹³

Property You Received in a Divorce

Transfers between spouses during marriage, or to a former spouse incident to divorce, are treated like gifts for basis purposes. No gain or loss is recognized on the transfer, and you take the transferor’s adjusted basis.¹⁴

There is no step-up for divorce transfers. If your ex bought the home for $150,000 and you receive it in the settlement when it’s worth $500,000, your basis is $150,000. When you sell, the gain is measured from $150,000, and the home sale exclusion may not cover it all. Two assets with the same current value can produce very different tax results depending on their built-in gain, so look at basis alongside value during settlement negotiations.

Wash Sales

Sell a stock or security at a loss and buy the same or a substantially identical one within 30 days before or after the sale, and the loss is disallowed under the wash sale rule.¹⁵ The loss isn’t gone: it’s added to the basis of the replacement shares. Sell at an $800 loss, buy replacement shares for $3,000 inside the window, and your basis in the new shares is $3,800.¹⁶

Your brokerage should report wash sales in Box 1g of Form 1099-B, but cross-account trades often go unflagged. A loss sale in one brokerage followed by a purchase of the same stock in another account, or in your IRA, is still a wash sale, and you need to track it yourself.

Selling Your Home

Basis still matters when you sell a primary residence, even with the exclusion of up to $250,000 of gain (or $500,000 for joint filers) available under Section 121 for homes owned and used as the main home for at least two of the five years before the sale.¹⁷ A home bought decades ago at a low price can easily produce a gain above the threshold.

Start with your original purchase price, add qualifying settlement costs, add capital improvements made during ownership, and subtract any depreciation claimed for business or rental use of part of the home. The gain is the difference between net sale proceeds and that adjusted basis.

Records: What to Keep and How to Rebuild

Basis math only works if you have the paperwork. Keep the closing disclosure for a home and receipts for every major improvement. For securities, keep Form 1099-B and older trade confirmations or account statements for uncovered lots. For inherited property, keep the date-of-death appraisal, the Form 706 if one was filed, and any brokerage statement showing values on that date. For gifts, get the donor’s original purchase records and the fair market value on the gift date.

When Records Are Missing

The IRS itself points to several ways to reconstruct basis. For a home, look at comparable sales from the year you bought, request copies of appraisals from your mortgage lender, or check your insurance policy for building values. For improvements, contact the contractors who did the work or pull records from home improvement loan paperwork. For inherited property, check probate court records or contact the attorney who handled the estate. The county assessor’s office may have historical valuation records.¹⁸

The effort is worth it. Sell an asset and fail to substantiate any basis, and you owe tax on the entire sale price.

Reporting Basis on Your Return

Sales get reported on Form 8949, with totals flowing to Schedule D. Form 8949 has columns for the asset description, dates acquired and sold, sale proceeds, and your cost or other basis.¹⁹ Where the brokerage reported basis on Form 1099-B, enter the reported figure and use the adjustment column for corrections: disallowed wash sale losses, inherited property entered with “INHERITED” in the date-acquired column, or a mismatch between your records and the brokerage’s number. Short-term and long-term gains and losses are then netted on Schedule D.²⁰

Getting basis wrong on these forms can trigger the accuracy-related penalty of 20% of the resulting underpayment.¹ After filing, you can request a transcript through your online account at IRS.gov to confirm the return was processed as filed.²¹

1
Internal Revenue Service. Accuracy-Related Penalty
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Office of the Law Revision Counsel. 26 USC 1012 – Basis of Property Cost
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IRS. 2024 Instructions for Form 1099-B
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Internal Revenue Service. Stocks (Options, Splits, Traders) 7
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Internal Revenue Service. Publication 551, Basis of Assets
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Office of the Law Revision Counsel. 26 USC 1016 – Adjustments to Basis
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Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent
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Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation
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Internal Revenue Service. Publication 555, Community Property
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Federal Register. Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent
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Office of the Law Revision Counsel. 26 USC 1223 – Holding Period of Property
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Office of the Law Revision Counsel. 26 USC 1015 – Basis of Property Acquired by Gifts and Transfers in Trust
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eCFR. 26 CFR 1.1015-5 – Increased Basis for Gift Tax Paid
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Office of the Law Revision Counsel. 26 USC 1041 – Transfers of Property Between Spouses or Incident to Divorce
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Office of the Law Revision Counsel. 26 USC 1091 – Loss From Wash Sales of Stock or Securities
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Internal Revenue Service. Case Study 1 – Wash Sales
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Office of the Law Revision Counsel. 26 USC 121 – Exclusion of Gain From Sale of Principal Residence
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Internal Revenue Service. Reconstructing Records After a Natural Disaster or Casualty Loss
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IRS.gov. Instructions for Form 8949 (2025)
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Internal Revenue Service. Instructions for Schedule D (Form 1040) (2025)
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Internal Revenue Service. Get Your Tax Records and Transcripts