1. What is Adjusted Basis?

Adjusted Basis represents the net cost of a property after accounting for depreciation and improvements. It is used to determine capital gains or losses when the property is sold, and is essential for tax purposes.

2. How Does the Calculator Work?

The calculator uses the Adjusted Basis formula:

Where:

• \( \text{Cost Basis} \) — Original purchase price of the property
• \( \text{Depreciation} \) — Total depreciation claimed over ownership period
• \( \text{Improvements} \) — Cost of capital improvements that add value

Explanation: The formula adjusts the original cost basis downward for depreciation (wear and tear) and upward for improvements (value-added enhancements).

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gains when selling property, calculating depreciation recapture, and making informed investment decisions.

4. Using the Calculator

Tips: Enter cost basis in dollars (original purchase price), depreciation in dollars (total claimed), and improvements in dollars (capital improvements only). All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between cost basis and adjusted basis?
A: Cost basis is the original purchase price, while adjusted basis accounts for depreciation and improvements over time.

Q2: What qualifies as an "improvement" for basis calculation?
A: Capital improvements that add value, prolong life, or adapt to new uses (e.g., room additions, roof replacement, kitchen remodel).

Q3: How is depreciation calculated for rental properties?
A: Typically using the straight-line method over 27.5 years for residential rental properties.

Q4: Why is adjusted basis important for tax purposes?
A: It determines the taxable gain when selling: Sale Price - Adjusted Basis = Taxable Gain.

Q5: Can adjusted basis be negative?
A: No, adjusted basis should not be negative. If calculations show negative, review depreciation and improvement values.