Definition
The original purchase price of property plus improvements, minus depreciation, used to calculate gain on sale.
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Cost basis is critical for calculating capital gains tax. Includes purchase price, closing costs, and capital improvements. Reduced by depreciation taken.
Pro Tip
Keep detailed records of all improvements; they increase cost basis and reduce taxable gain.
Example
Cost basis of $300,000 purchase plus $50,000 improvements equals $350,000 basis.