1. What is Adjusted Basis?

Adjusted Basis refers to the original cost of a property plus the cost of improvements minus any casualty losses or depreciation. It's used to determine capital gains or losses when selling a property for tax purposes.

2. How Does the Calculator Work?

The calculator uses the Adjusted Basis formula:

Where:

• Cost Basis — Original purchase price of the home plus certain closing costs
• Improvements — Capital improvements that add value to the property
• Casualty Losses — Losses from theft, casualty, or natural disasters

Explanation: This calculation helps homeowners determine the true cost basis of their property for tax purposes when selling or calculating depreciation.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability, calculating depreciation for rental properties, and estate planning purposes.

4. Using the Calculator

Tips: Enter all amounts in dollars. Cost basis should include purchase price and eligible closing costs. Improvements should be permanent additions that increase property value. Casualty losses should be documented and IRS-approved.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements are permanent additions that increase property value, such as room additions, kitchen renovations, new roofing, or landscaping that adds value.

Q2: What's the difference between repairs and improvements?
A: Repairs maintain current condition (deductible as expenses), while improvements add value (added to cost basis).

Q3: How do I document casualty losses?
A: Keep records of insurance claims, repair estimates, photos of damage, and police reports for theft. IRS requires specific documentation for casualty loss deductions.

Q4: Can I include closing costs in cost basis?
A: Yes, certain closing costs like legal fees, title insurance, and recording fees can be added to your cost basis.

Q5: When is adjusted basis used?
A: Primarily used when selling the property to calculate capital gains, or for rental properties to calculate depreciation deductions.