Real estate investing can be a great way to build wealth over time. Having accurate cost basis data for your property portfolio is important to making informed decisions about buying and selling properties.
Cost basis represents the original value of your investment and includes the purchase price of the property, as well as any additional costs associated with buying and owning the property, such as closing costs, legal fees, and any improvements or renovations made to it. Here are several reasons for maintaining your cost basis:
Tracking your cost basis allows you to accurately calculate your capital gains or losses when you sell a property. By keeping accurate records, you can minimize your tax liability. The IRS has specific rules for how you calculate and report cost basis on your tax return and not keeping accurate records could result in paying more taxes than necessary.
Making sound investment decisions:
It can help evaluate whether a property is truly a good deal or not by comparing historical returns on different properties and determining which ones are the most profitable.
Keeping track of cost basis allows you to evaluate the performance of your property over time and make decisions about whether to hold or sell based on your investment goals.
When you pass away, your heirs will receive a step-up in basis for inherited assets, which means that the cost basis for the property will be reset to the fair market value at the time of your death. This can result in significant tax savings for your heirs when they eventually sell the property.