1. What Is Basis Of Rental Property?

The basis of a rental property represents the total investment in the property for tax purposes. It includes the original purchase price plus any capital improvements, minus accumulated depreciation. This figure is crucial for calculating capital gains when the property is sold.

2. How Does The Calculator Work?

The calculator uses the basis calculation formula:

Where:

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

Explanation: The basis starts with the purchase price, increases with capital improvements, and decreases as depreciation is claimed over time.

3. Importance Of Basis Calculation

Details: Accurate basis calculation is essential for determining taxable gain or loss when selling rental property, calculating depreciation deductions, and managing tax liabilities effectively.

4. Using The Calculator

Tips: Enter the original purchase price in dollars, total cost of capital improvements in dollars, and accumulated depreciation in dollars. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as a capital improvement?
A: Capital improvements are additions or upgrades that increase property value, extend useful life, or adapt to new uses (e.g., new roof, room additions, major renovations).

Q2: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years using the straight-line method, while commercial property uses 39 years.

Q3: What's the difference between basis and adjusted basis?
A: Adjusted basis includes all adjustments to the original basis, including improvements, depreciation, and casualty losses.

Q4: When do I need to know my property's basis?
A: You need basis information when selling the property, calculating depreciation, determining rental losses, or reporting on tax returns.

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