1. What Is Adjusted Basis?

Adjusted basis refers to the original cost of a property plus the cost of improvements minus any depreciation taken. It is used to determine the gain or loss when property is sold or gifted.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Original Basis — Initial purchase price or acquisition cost of the property
• Improvements — Capital improvements that add value to the property
• Depreciation — Amount of depreciation claimed on the property

Explanation: The adjusted basis represents the property's current value for tax purposes after accounting for capital improvements and depreciation deductions.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability, calculating depreciation recapture, and establishing the donor's basis for gifted property.

4. Using The Calculator

Tips: Enter all amounts in dollars. Original basis should include purchase price and acquisition costs. Improvements should include only capital improvements, not routine maintenance. Depreciation should include all depreciation claimed to date.

5. Frequently Asked Questions (FAQ)

Q1: How Is Donor's Adjusted Basis Calculated?
A: For gifted property, the donor's adjusted basis is calculated using the same formula: Original Basis + Improvements - Depreciation. This becomes the starting point for the recipient's basis.

Q2: What qualifies as a capital improvement?
A: Capital improvements are additions or renovations that increase property value, extend its useful life, or adapt it to new uses. Examples include room additions, roof replacement, or kitchen remodeling.

Q3: How does adjusted basis affect capital gains?
A: Capital gain is calculated as Selling Price - Adjusted Basis. A higher adjusted basis results in lower capital gains and potentially lower tax liability.

Q4: What's the difference between adjusted basis and cost basis?
A: Cost basis is the original purchase price, while adjusted basis includes improvements and subtracts depreciation taken over time.

Q5: When should adjusted basis be calculated?
A: Adjusted basis should be calculated when selling property, gifting property, calculating depreciation recapture, or determining inheritance basis.