Adjusted basis can help you determine the value of your home with the land. The starting point for adjusted basis is usually the original purchase price of the home, including any mortgage taken out at the time of purchase. Here are a few exceptions:

• If the home was a replacement residence for a previous home, start with the adjusted basis from the Form 2119 filed when the previous home was sold.
• If the home was received in a divorce after July 18, 1984, start with the basis your ex-spouse had in the home.
• If the home was received in a divorce before July 19, 1984, start with the value of the home at the time you received the property.
• If you inherited your home, start with the value of the home used for estate tax purposes. If you inherited the home from your spouse and you co-owned the home, your starting basis is one-half your original basis, and one-half the estate tax value.
• If you received the home as a gift, start with the donor's basis, or, if lower, the value of the home at the time of the gift.

Add to your basis the cost of any capital improvements you made to the house. Capital improvements are expenditures that add to the value or prolong the life of the home. They include new additions and renovations, as well as any new plumbing, roofing, rewiring, and paving. See the IRS instructions' Capital Improvements Worksheet to help you remember items that could reduce your tax.

Also add to your basis settlement costs from the original purchase, such as legal fees and recording costs, and special assessments.

Subtract these items from your basis:

• Insurance payments for casualty losses
• Deductible casualty losses not covered by insurance
• Payments received for granting a right-of-way or easement
• Seller-paid points for a home bought after April 3, 1994, or which were deducted
• Depreciation
• Adoption credit based on cost of improvements to the home
• Adoption expenses paid by your employer and used to improve the home, if the expenses weren't included in your income
• Residential energy credit
• Credit for first-time homebuyers in District of Columbia
• Energy conservation subsidy