1. What Is Adjusted Basis?

Adjusted Basis represents the total cost of a property including purchase price and improvements, minus any depreciation taken. It's used to determine capital gains or losses when selling a home for tax purposes.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original cost to acquire the property
• \( \text{Improvements} \) — Capital improvements that add value to the property
• \( \text{Depreciation} \) — Depreciation deductions taken over time

Explanation: The adjusted basis reflects the true investment in the property, accounting for both additional investments and value reductions over time.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gain or loss on property sales, ensuring proper tax reporting, and maximizing legitimate deductions.

4. Using the Calculator

Tips: Enter purchase price in dollars, improvements in dollars, and depreciation in dollars. All values must be non-negative numbers representing actual costs and deductions.

5. Frequently Asked Questions (FAQ)

Q1: What counts as improvements?
A: Capital improvements include major renovations like room additions, kitchen remodels, roof replacement, and permanent fixtures that add value to the property.

Q2: What doesn't count as improvements?
A: Routine maintenance and repairs (painting, fixing leaks) don't increase basis. Only improvements that extend the property's life or increase its value qualify.

Q3: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years for residential property using the straight-line method.

Q4: Why is adjusted basis important for taxes?
A: Adjusted basis determines your capital gain: Sale Price - Adjusted Basis = Taxable Gain. A higher adjusted basis means lower taxable gain.

Q5: Can I adjust basis for personal residences?
A: For personal residences, you typically don't claim depreciation, but improvements still increase your basis. Different rules apply for primary residences vs. rental properties.