1. What is Adjusted Cost Basis?

Adjusted Cost Basis (ACB) represents the total cost of an asset after accounting for improvements and depreciation. It's used to determine capital gains or losses when the asset is sold, providing a more accurate picture of the investment's true cost.

2. How Does the Calculator Work?

The calculator uses the ACB formula:

Where:

• Original Cost — Initial purchase price of the asset
• Improvements — Capital improvements that increase the asset's value
• Depreciation — Decrease in value due to wear, tear, or obsolescence

Explanation: The formula adjusts the original purchase price by adding capital improvements and subtracting accumulated depreciation to arrive at the current cost basis.

3. Importance of ACB Calculation

Details: Accurate ACB calculation is crucial for tax purposes, investment analysis, and financial planning. It determines the taxable gain or loss when an asset is sold and helps in making informed investment decisions.

4. Using the Calculator

Tips: Enter the original purchase price, total cost of improvements made, and accumulated depreciation. All values must be in dollars and non-negative. The calculator will compute the adjusted cost basis.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as an improvement?
A: Improvements are capital expenditures that extend the asset's life, increase its value, or adapt it to new uses. Examples include renovations, additions, and major upgrades.

Q2: How is depreciation calculated?
A: Depreciation is typically calculated using methods like straight-line or declining balance, based on the asset's useful life and salvage value.

Q3: Why is ACB important for taxes?
A: ACB determines the capital gain or loss when selling an asset. Lower ACB means higher taxable gain, while higher ACB means lower taxable gain.

Q4: Can ACB be negative?
A: No, ACB should not be negative. If depreciation exceeds the sum of original cost and improvements, the ACB would be zero in most tax jurisdictions.

Q5: How often should I update ACB?
A: Update ACB whenever significant improvements are made or annually for depreciation calculations to maintain accurate records.