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Does Schedule D 'cost basis' include current debt obligations?

Your question:

Does the “cost basis” on the Schedule D include any of current debt obligations associated with the Real Estate sold? Can you please clarify why you would need to obtain a closing statment due to seller.

Linda says:

Great question. Capital gains is an area that is often a challenge.

The cost or basis is related to what the borrower paid for the properties plus any significant capital improvements. It has absolutely nothing to do with the amount the borrower owes on the property.

In fact, when the property value has increased and the borrower has refinanced, it is not uncommon for the underlying mortgage or contract to be higher than the tax cost or basis.

That is why it is imperative that you get the closing statements. That is the place to verify the cash the seller actually received. A work-around might be if you have a credit report from before the sale, or a personal net worth statement from before the sale, that shows what the underlying mortgage was shortly before the sale. The Schedule D by itself will never give you what you need for cashflow purposes.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.