1. What is Adjusted Cost Basis?

Adjusted cost basis represents the total capital investment in a property for tax purposes. It includes the original purchase price plus certain additional costs, minus any depreciation claimed over time.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original cost of the property
• \( \text{Closing Costs} \) — Fees paid during property acquisition
• \( \text{Improvements} \) — Capital improvements made to the property
• \( \text{Depreciation} \) — Depreciation claimed on the property

Explanation: This calculation determines the property's adjusted basis, which is used to calculate capital gains when the property is sold.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling a property. A higher adjusted basis reduces taxable gains.

4. Using the Calculator

Tips: Enter all amounts in dollars. Include all legitimate closing costs and capital improvements. Only include depreciation that has been properly claimed on tax returns.

5. Frequently Asked Questions (FAQ)

Q1: What costs can be included in closing costs?
A: Legal fees, title insurance, recording fees, transfer taxes, and other direct acquisition costs.

Q2: What qualifies as improvements vs. repairs?
A: Improvements add value or extend life (roof replacement, kitchen remodel), while repairs maintain current condition (painting, fixing leaks).

Q3: How does adjusted basis affect capital gains?
A: Capital gain = Sale price - Adjusted basis. A higher adjusted basis means lower taxable gain.

Q4: Can I include mortgage payments?
A: No, mortgage principal payments are not included in adjusted basis calculation.

Q5: What if I inherited the property?
A: Inherited properties typically use fair market value at date of death as the starting basis.