How Is Adjusted Basis Of Home Sold Calculated

Adjusted Basis Formula:

\[ Adjusted\ Basis = Purchase\ Price + Improvements - Depreciation \]

Adjusted Basis ($):

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1. What Is Adjusted Basis Of Home Sold?

The adjusted basis of a home sold represents the total cost basis of the property after accounting for capital improvements and depreciation. It is used to determine the capital gain or loss when selling a property for tax purposes.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

\[ Adjusted\ Basis = Purchase\ Price + Improvements - Depreciation \]

Where:

$ Purchase\ Price $ — Original cost of acquiring the property
$ Improvements $ — Capital improvements made to the property
$ Depreciation $ — Depreciation claimed on the property

Explanation: The adjusted basis starts with the original purchase price, adds the cost of any capital improvements, and subtracts any depreciation taken on the property.

3. Importance Of Adjusted Basis Calculation

Details: Calculating the adjusted basis is crucial for determining capital gains tax liability when selling a property. A higher adjusted basis results in lower taxable gain, reducing the tax burden.

4. Using The Calculator

Tips: Enter the original purchase price, total cost of all capital improvements, and total depreciation claimed. All values must be in dollars and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements are additions or renovations that increase the property's value, extend its life, or adapt it to new uses (e.g., room additions, roof replacement, kitchen remodel).

Q2: What is the difference between repairs and improvements?
A: Repairs maintain the property's current condition and are not added to basis, while improvements enhance the property's value and are added to basis.

Q3: How is depreciation calculated for rental properties?
A: Residential rental properties are typically depreciated over 27.5 years using the straight-line method.

Q4: Can I adjust basis for selling costs?
A: Yes, selling costs like real estate commissions, legal fees, and advertising can be added to the basis to reduce taxable gain.

Q5: What records should I keep for basis calculations?
A: Keep records of purchase documents, receipts for all improvements, depreciation schedules, and records of any casualty losses or assessments.