1. What Is Adjusted Basis?

Adjusted basis refers to the original cost of a property plus the cost of capital improvements minus any depreciation taken. It's used to determine capital gains or losses when selling real estate for tax purposes.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( Purchase\ Price \) — Original cost of acquiring the property
• \( Capital\ Improvements \) — Costs of permanent improvements that add value to the property
• \( Depreciation \) — Amount of depreciation claimed on the property for tax purposes

Explanation: The adjusted basis represents the property's true cost basis after accounting for improvements and depreciation over time.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gain or loss when selling real estate, ensuring proper tax reporting and minimizing tax liability.

4. Using The Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as capital improvements?
A: Capital improvements include additions, renovations, new roofing, HVAC systems, plumbing upgrades, and other permanent enhancements that increase property value.

Q2: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years for residential and 39 years for commercial properties using the straight-line method.

Q3: What's the difference between basis and adjusted basis?
A: Basis is the original cost, while adjusted basis includes improvements and subtracts depreciation taken over time.

Q4: When do I need to calculate adjusted basis?
A: You need adjusted basis when selling property, calculating capital gains tax, or determining inheritance tax basis for inherited property.

Q5: Are repairs considered capital improvements?
A: No, routine repairs and maintenance are not capital improvements. Only improvements that add value, prolong life, or adapt to new uses qualify.