1. What Is Adjusted Basis?

Adjusted Basis represents the total cost of a property for tax purposes, accounting for various adjustments made over time. It is used to calculate capital gains or losses when the property is sold.

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 to the property
• \( Depreciation \) — Accumulated depreciation deductions taken over time

Explanation: The adjusted basis starts with the original cost basis, increases with capital improvements, and decreases with depreciation deductions.

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 tax deductions.

4. Using The Calculator

Tips: Enter all amounts in dollars. Cost basis should include purchase price plus closing costs and other acquisition expenses. Improvements should only include capital improvements, not routine maintenance.

5. Frequently Asked Questions (FAQ)

Q1: What is included in cost basis?
A: Purchase price, legal fees, title insurance, recording fees, and other costs directly related to acquiring the property.

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

Q3: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated using the Modified Accelerated Cost Recovery System (MACRS) over 27.5 or 39 years.

Q4: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If depreciation exceeds cost basis plus improvements, the adjusted basis is zero.

Q5: When is adjusted basis used?
A: Primarily used when calculating capital gains tax upon sale of the property: Sale Price - Adjusted Basis = Taxable Gain/Loss.