1. What Is Adjusted Basis Of Property?

The adjusted basis of property represents the original cost of the property plus the cost of improvements minus any depreciation taken. It is used to determine the gain or loss when the property is sold and for calculating depreciation deductions.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( Original\ Basis \) — Initial purchase price plus acquisition costs
• \( Improvements \) — Capital improvements that add value to the property
• \( Depreciation \) — Depreciation deductions taken over time

Explanation: The adjusted basis reflects the true investment in the property after accounting for improvements and wear and tear.

3. Importance Of Adjusted Basis Calculation

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

4. Using The Calculator

Tips: Enter the original basis (purchase price plus acquisition costs), total improvements made to the property, and total depreciation taken. All values must be in dollars and non-negative.

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: Improvements are additions or upgrades that increase property value, extend useful life, or adapt to new uses (e.g., room additions, new roof, kitchen remodel).

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

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

Q5: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If depreciation exceeds original basis plus improvements, adjusted basis is zero.