1. What is Adjusted Basis Of Property?

Adjusted basis refers to the original cost of a property plus the cost of improvements minus any depreciation taken. It's used to determine the capital gain or loss when the property is sold.

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 — Depreciation deductions taken over time

Explanation: This calculation adjusts the original cost basis to account for investments in the property and wear and tear over time.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for tax purposes when selling property, as it determines the taxable gain or loss on the sale.

4. Using the Calculator

Tips: Enter all amounts in dollars. Purchase price and improvements should include all associated costs. Depreciation should reflect the total depreciation claimed over the ownership period.

5. Frequently Asked Questions (FAQ)

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

Q2: How is depreciation calculated?
A: Depreciation is typically calculated using the Modified Accelerated Cost Recovery System (MACRS) for tax purposes over the property's useful life.

Q3: What's the difference between basis and adjusted basis?
A: Basis is the original cost, while adjusted basis accounts for changes (improvements and depreciation) since acquisition.

Q4: When is adjusted basis used?
A: Primarily used when calculating capital gains tax upon sale of investment or business property.

Q5: Are repairs considered improvements?
A: No, repairs maintain the property's current condition but don't add value or prolong life significantly (e.g., painting, fixing leaks).