What is Purchase Price? A Comprehensive Legal Overview
Definition & Meaning
The term purchase price refers to the total amount paid for acquiring a new principal residence. This includes the adjusted basis of the property at the time of acquisition and encompasses all costs directly related to the acquisition or construction of the home. These costs must qualify as capital expenditures, which means they cannot be deducted from taxable income. Examples of these costs include:
- Cost of acquisition or construction
- Title insurance
- Attorney's fees
- Transfer taxes
- Other transfer-related costs
Legal Use & context
In legal practice, the purchase price is a critical concept in real estate transactions, particularly when determining tax implications and capital gains. It is also relevant in cases involving property transfers, estate planning, and divorce settlements. Understanding the purchase price helps individuals manage their financial responsibilities and legal obligations effectively. Users can utilize legal templates from US Legal Forms to assist with documentation related to property purchases.
Real-world examples
Here are a couple of examples of abatement:
Example 1: If a person purchases a home for $300,000 and incurs $10,000 in closing costs, the total purchase price would be $310,000.
Example 2: A couple builds a new home costing $400,000, with an additional $20,000 spent on permits and inspections. The purchase price would be $420,000.