If you have recently sold a home, calculating its cost basis may be important for federal income tax purposes. Though the 1997 Taxpayer Relief Act liberalized capital gains rules, it did not affect how your cost basis is calculated.

Begin with the purchase price of your home. Add the cost of any capital improvements that added value to your home, prolonged its useful life or gave it a new or different use. Add any special tax assessments you paid. Then add any amounts spent to restore property damaged by fire, flood, wind, etc., net of insurance reimbursements and deductions taken against income.

Now subtract settlement or closing costs (for both your initial purchase and subsequent home sale) which you have not previously deducted from taxable income (these do not include prepaid expenses such as real estate taxes, homeowner's insurance and prepaid interest). Subtract depreciation previously claimed for business use of your home. Finally, subtract payments received or credits for easements/rights-of-way, energy-related capital improvements, etc. The total is your adjusted cost basis. For additional information consult IRS publication 523 (Selling Your Home).

For a free consultation to discuss which type of mortgage loan will work best for you, call Victoria Spannaus at Wachovia Mortgage, FSB. at (800) 741-7813 or 910-692-6225.