1. What is Adjusted Basis?

The adjusted basis of a rental property is the original cost plus improvements minus depreciation. It's used to calculate capital gains when the property is sold and for tax purposes.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original purchase price of the property
• \( \text{Improvements} \) — Cost of capital improvements made to the property
• \( \text{Depreciation} \) — Total depreciation claimed on the property

Explanation: The formula accounts for the original investment, value added through improvements, and value reduced through depreciation.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains taxes when selling rental property and for proper tax reporting.

4. Using the Calculator

Tips: Enter all amounts in USD. Include only capital improvements (not repairs) and the total depreciation claimed over all years of ownership.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between improvements and repairs?
A: Improvements add value or extend life (like a new roof), while repairs maintain current condition (like fixing a leak).

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

Q3: Does adjusted basis affect my taxes?
A: Yes, it determines your capital gain when selling: Sale Price - Adjusted Basis = Capital Gain.

Q4: Should I include closing costs in the basis?
A: Yes, certain closing costs can be added to your original basis when you purchase the property.

Q5: What if I inherited the property?
A: Your basis is typically the property's fair market value at the time of inheritance (stepped-up basis).