1. What is Adjusted Basis?

Adjusted basis refers to the original cost of a property plus the cost of improvements minus any depreciation taken. It's used to determine capital gains or losses when selling real estate property.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Purchase Price — Original cost of acquiring the property
• Improvements — Capital improvements made to the property
• Depreciation — Total depreciation claimed on the property

Explanation: This calculation helps determine the true cost basis of a property for tax purposes when selling or disposing of real estate.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability, calculating depreciation recapture, and making informed decisions about property sales or exchanges.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as an improvement?
A: Improvements are additions or upgrades that increase property value, prolong its useful life, or adapt it to new uses (e.g., room additions, roof replacement, kitchen remodel).

Q2: How is depreciation calculated?
A: Residential rental property is typically depreciated over 27.5 years using the straight-line method. Commercial property is depreciated over 39 years.

Q3: What's the difference between repairs and improvements?
A: Repairs maintain property condition (deductible expenses) while improvements add value (capitalized and added to basis).

Q4: When is adjusted basis used?
A: Primarily when selling property to calculate gain/loss, during like-kind exchanges, and when calculating depreciation recapture.

Q5: How does adjusted basis affect taxes?
A: A higher adjusted basis reduces taxable gain when selling property, potentially lowering capital gains tax liability.