1. What is Adjusted Cost Basis?

Adjusted cost basis represents the total capital investment in an asset after accounting for improvements and depreciation. It's used to calculate capital gains or losses when the asset is sold.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original cost of acquiring the asset
• \( \text{Capital Improvements} \) — Costs of improvements that add value or extend life
• \( \text{Depreciation} \) — Reduction in value due to wear, tear, and obsolescence

Explanation: This formula adjusts the original purchase price to reflect the true investment in the asset over time.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable capital gains, making informed investment decisions, and proper financial reporting.

4. Using the Calculator

Tips: Enter all values in dollars. Purchase price and improvements should be positive numbers. Depreciation represents the accumulated depreciation taken on the asset.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Improvements that add value, prolong useful life, or adapt to new uses (e.g., room additions, roof replacement, major renovations).

Q2: How is depreciation calculated?
A: Depreciation is typically calculated using methods like straight-line or MACRS over the asset's useful life as defined by tax authorities.

Q3: Why is adjusted basis important for taxes?
A: Adjusted basis determines the taxable gain when selling an asset: Selling Price - Adjusted Basis = Taxable Gain.

Q4: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If depreciation exceeds purchase price plus improvements, the basis is zero.

Q5: Does this apply to all types of assets?
A: Primarily used for real estate, business assets, and investments. Different rules may apply for securities and personal property.