1. What is Adjusted Basis?

Adjusted basis is the original cost of a property plus the cost of improvements minus any depreciation taken. It's used to calculate capital gains or losses when you sell real estate for tax purposes.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

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

Explanation: The adjusted basis represents your true investment in the property and is used to determine taxable gain or loss upon sale.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling real estate. A higher adjusted basis results in lower taxable gain.

4. Using the Calculator

Tips: Enter purchase price, improvements, and depreciation in dollars. All values must be non-negative. Improvements include capital expenses like renovations, additions, and major repairs.

5. Frequently Asked Questions (FAQ)

Q1: What counts as improvements?
A: Capital improvements that add value to the property or prolong its life, such as room additions, kitchen remodels, roof replacement, or new HVAC systems.

Q2: What doesn't count as improvements?
A: Routine maintenance and repairs that don't add significant value, such as painting, cleaning, or minor fixes.

Q3: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years for residential property using the straight-line method.

Q4: When do I need adjusted basis?
A: You need adjusted basis when selling investment property, rental property, or business property to calculate capital gains tax.

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