1. What Is Adjusted Basis Of Property?

Adjusted basis refers to the original cost of a property plus the cost of improvements minus any depreciation taken. It represents the property's value for tax purposes when calculating capital gains or losses upon sale.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Original Basis} \) — Initial purchase price plus acquisition costs
• \( \text{Improvements} \) — Capital improvements that add value to the property
• \( \text{Depreciation} \) — Accumulated depreciation claimed on the property

Explanation: The adjusted basis reflects the true investment in the property by accounting for money spent on improvements and depreciation deductions taken over time.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gain or loss when selling property, ensuring proper tax reporting, and maximizing legitimate tax deductions.

4. Using The Calculator

Tips: Enter original basis in dollars, improvements in dollars, and depreciation in dollars. All values must be non-negative numbers representing currency amounts.

5. Frequently Asked Questions (FAQ)

Q1: What is included in original basis?
A: Original basis includes purchase price plus acquisition costs such as legal fees, title insurance, and recording fees.

Q2: What qualifies as improvements?
A: Capital improvements that add value, prolong life, or adapt to new uses, such as room additions, roof replacement, or kitchen remodeling.

Q3: How is depreciation calculated?
A: Depreciation is typically calculated using MACRS method over the property's useful life (27.5 years for residential, 39 years for commercial).

Q4: When is adjusted basis used?
A: Adjusted basis is used when calculating capital gains tax upon sale: Selling Price - Adjusted Basis = Taxable Gain.

Q5: Are repairs considered improvements?
A: No, routine repairs and maintenance are not capital improvements and cannot be added to basis.