1. What is Adjusted Cost Basis?

Adjusted Cost Basis (ACB) represents the total cost of a property including purchase price, improvements, and minus depreciation. It's used for calculating capital gains tax when selling real estate and for property tax assessments.

2. How Does the Calculator Work?

The calculator uses the Adjusted Cost Basis formula:

Where:

• Purchase Price — Original cost to acquire the property
• Improvements — Capital improvements that add value to the property
• Depreciation — Accumulated depreciation claimed on the property

Explanation: The formula calculates the adjusted basis by starting with the original purchase price, adding qualified improvements, and subtracting any depreciation taken over the ownership period.

3. Importance of Adjusted Cost Basis

Details: Accurate ACB calculation is crucial for determining capital gains tax liability, calculating property tax assessments, and making informed real estate investment decisions.

4. Using the Calculator

Tips: Enter purchase price in dollars, improvements in dollars, and depreciation in dollars. All values must be non-negative numbers. Improvements should include only capital improvements, not routine maintenance.

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, roof replacement, or new HVAC systems.

Q2: How is depreciation calculated?
A: For residential rental property, depreciation is typically calculated over 27.5 years using the straight-line method. Commercial property uses 39 years.

Q3: Why is ACB important for taxes?
A: ACB determines your capital gain when selling: Sale Price - ACB = Capital Gain. This affects your tax liability significantly.

Q4: Does routine maintenance count as improvements?
A: No, routine maintenance like painting or minor repairs are expenses, not capital improvements that increase basis.

Q5: Can ACB be negative?
A: No, ACB cannot be negative. If depreciation exceeds purchase price plus improvements, ACB is zero for tax purposes.