Adjusted basis of home?

Question

when using improvements to figure our the adjusted basis for a home do I use:

1. The actual cost of the improvements
Does this include my labor?

or

2. The value added by making the improvements? For instance I built a $3,000 Deck and I think it increased the value of my home $5,000.

Answer 1

You use the actual cost of the improvements including the other persons labor. You wouldn't have been able to get the improvements without the labor therefore it is a necessary cost and can be included. The increased value the improvements bring has nothing to do with the basis of your home but more to do with the selling price.

Answer 2

Actual cost to you of improvements. If it didn't cost you labor then you can't add it in to your basis. This is straight from the IRS website publication 523

Built by you. If you built all or part of your house yourself, its basis is the total amount it cost you to complete it. Do not include in the cost of the house:
The value of your own labor, or

The value of any other labor you did not pay for.

For more info http://www.irs.gov/publications/p523/ar02.html#d0e909

Answer 3

You would use the actual cost that you paid for the improvements, not counting your labor, but if you paid someone for THEIR labor, you count that.

If the deck cost $3000, that's what you add to the basis. The increased value of your home has nothing to do with it.

Answer 4

You use the actual out-of-pocket cost of the improvements. Do NOT include the value of your own labor.

Answer 5

Use the actual cost of improvements. You would be able to count what you paid someone else to do the labor, but you do not get to count your own, unless you are a professional contractor. The basis is the cost; the market value is the value of the house and improvements.