Established by Original Purchase Price and Capital Investments
The cost basis is the amount the current owner originally paid to acquire the land, including the purchase price, closing costs, and any capital improvements made over time. It forms the foundation for calculating capital gains tax upon sale.

• Includes title fees, legal costs, and surveying at the time of purchase
  
• Permanent improvements (e.g., grading, utility extensions, fencing) increase the basis
  
• Costs for repairs or routine maintenance are not included
  

Adjusted Over Time for Tax Purposes
The basis may be adjusted upward or downward based on tax deductions, depreciation (if the land had depreciable improvements), or partial sales. This results in an “adjusted basis”, used in capital gains calculations.

• Depreciation claimed on improvements (e.g., buildings) reduces basis
  
• Casualty losses or easement grants may lower the basis
  
• Reinvested proceeds from prior 1031 exchanges may roll over into the current basis
  

Verified Through Purchase Records and Tax Documents
To confirm the current owner’s cost basis, documentation such as the original purchase agreement, closing statement (HUD-1 or ALTA), receipts for improvements, and prior tax filings must be reviewed.

• The owner’s CPA or tax advisor typically maintains basis tracking
  
• Title companies or attorneys involved in past transactions may also retain records
  
• For inherited land, basis is often set by the fair market value at the time of inheritance