1. What is Adjusted Home Basis?

Adjusted Home Basis represents the total cost of a property for tax purposes, including the original purchase price plus capital improvements minus accumulated depreciation. It is used to determine capital gains or losses when selling a property.

2. How Does the Calculator Work?

The calculator uses the Adjusted Basis formula:

Where:

• \( Purchase\ Price \) — Original cost of the property
• \( Improvements \) — Capital improvements made to the property
• \( Depreciation \) — Accumulated depreciation claimed on the property

Explanation: The adjusted basis accounts for all costs that increase the property's value (improvements) and reductions for depreciation taken over time.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gain or loss on property sales, ensuring proper tax reporting, and maximizing tax benefits through proper cost basis tracking.

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, roof replacement, kitchen remodeling, or new HVAC systems.

Q2: How is depreciation calculated for rental properties?
A: Residential rental properties are depreciated over 27.5 years using the straight-line method, based on the building value (excluding land).

Q3: Can I include closing costs in the purchase price?
A: Yes, certain closing costs like legal fees, title insurance, and recording fees can be added to the purchase price to increase your basis.

Q4: What's the difference between adjusted basis and cost basis?
A: Cost basis is the original purchase price, while adjusted basis includes improvements and subtracts depreciation taken over time.

Q5: How does adjusted basis affect capital gains tax?
A: Capital gain = Sale price - Adjusted basis - Selling expenses. A higher adjusted basis results in lower taxable gain and potentially lower capital gains tax.