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<I would expect that Congress WILL change the rules. They have twice in the last 10 years already. Since the general rule for any capital asset is that your gain is your sales price less your adjusted cost basis, you should always be able to determine your adjusted cost basis.>


This is all true, but I still believe that spending an inordinate amount of time calculating your gains and adjusting your cost basis is a waste of time for most people. In my own case any time spent above zero seconds is too much. I have been in my home about 14 years. To date we have only used about 20% of the CG allowance.

However, there are many cases where people should pay closer attention to this for tax purposes. One example would be if you are in an area where there is a huge expectation of price appreciation. Another would be if you may consider turning the house into a rental property. Yet another would be if you intend to use part of your home as a place of business. Having good records when you sell in any of these examples may be very important.

While it is true that congress has made changes in the law, it has actally gotten a lot easier than it used to be. In the past you would have had to keep track of your cost basis on every home you owned. If you owned 3-4 homes in a 10-15 year period, that could have been a monumental task. Now it is relatively straightforward. I would expect any plan to fundamentally change the current rules would meet with a lot of negative feedback for the tone deaf members of congress who would propose them.

FWIW, I have tracked the costs of my permanent improvements, but not for tax purposes. It is good to be able to know what each project costs for informational purposes. Several friends have shared information on various home projects over the years so that you can get a ballpark idea on the cost of future projects.

Personally, I do not consider ones home to be an investment in the tradtional sense of the word. If I buy a stock it is fairly easy to calculate my annual rate of return. It is much more complicated to try and do that with a home. Most people are math challenged enough or too lazy to bother figuring it out. Owning a home has a lot of associated expenses that go along with it. If you tend to oversimplify things, you can reach some wrong conclusions. If your 100k home has doubled in value in 10 years it would not be accurate to say you have a 100% gain or averaged a 10% annual return. You need to add in the cost of all permanent improvements, repairs, property taxes, mortgage interest, insurance, etc. On the other side you should subtract any benefit you have received from any itemized deductions. In this hypothetical example, the person whose home went from 100k to 200k in value may very well have only broken even or actually lost money.


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