1. What Is Adjusted Basis?

Adjusted basis is the original cost of a property plus the cost of improvements minus any depreciation taken. It's used to determine capital gains tax when selling a home or investment property.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original purchase price of the property
• \( \text{Improvements} \) — Cost of capital improvements made to the property
• \( \text{Depreciation} \) — Total depreciation claimed on the property

Explanation: The adjusted basis represents your total investment in the property for tax purposes, accounting for both additions and reductions in value.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling a property. A higher adjusted basis results in lower taxable gain.

4. Using The Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What counts as improvements?
A: Capital improvements that add value to the property or prolong its life, such as room additions, roof replacement, or kitchen remodeling. Routine maintenance doesn't count.

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

Q3: What if I inherited the property?
A: For inherited property, the basis is usually the fair market value at the time of the previous owner's death (stepped-up basis).

Q4: Are there any exclusions?
A: For primary residences, you may exclude up to $250,000 ($500,000 for married couples) of capital gains if you meet ownership and use tests.

Q5: How does adjusted basis affect taxes?
A: Capital gain = Sale price - Adjusted basis - Selling expenses. Lower adjusted basis means higher taxable gain.