1. What Is Adjusted Basis?

Adjusted Basis represents the total cost of an asset for tax purposes, accounting for purchase price, improvements, and depreciation. It's used to determine capital gains or losses when selling property or business assets.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Cost Basis — Original purchase price plus acquisition costs
• Improvements — Capital improvements that add value or extend life
• Depreciation — Accumulated depreciation deductions taken

Explanation: This calculation adjusts the original cost basis to reflect changes in the asset's value over time for accurate tax reporting.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is essential for determining taxable gains on asset sales, ensuring proper tax liability, and avoiding underpayment penalties or overpayment of taxes.

4. Using the Calculator

Tips: Enter all amounts in dollars. Cost basis and improvements should be positive values. Depreciation represents the total depreciation claimed over the asset's life.

5. Frequently Asked Questions (FAQ)

Q1: What is included in cost basis?
A: Purchase price plus acquisition costs like legal fees, title insurance, and transfer taxes.

Q2: What qualifies as an improvement?
A: Capital improvements that add value, adapt to new uses, or extend useful life (e.g., room additions, roof replacement).

Q3: How is depreciation calculated?
A: Based on IRS depreciation schedules (e.g., MACRS) over the asset's recovery period.

Q4: When is adjusted basis used?
A: Primarily for calculating capital gains/losses on asset sales, inheritance basis step-up, and casualty loss deductions.

Q5: Are there different rules for different assets?
A: Yes, residential rental property, commercial property, and business equipment have different depreciation rules and recovery periods.