1. What is Adjusted Cost Basis?

The adjusted cost basis represents the total amount invested in a property or asset for tax purposes. It includes the original purchase price plus any improvements, minus any depreciation or losses claimed.

2. How the Calculation Works

The calculator uses the following formula:

Where:

• Original Basis — Initial purchase price plus acquisition costs
• Improvements — Capital improvements that add value or extend life
• Depreciation — Annual depreciation deductions taken
• Losses — Casualty or theft losses claimed

Explanation: The adjusted basis is used to determine capital gains or losses when the property is sold.

3. Importance of Cost Basis

Details: Accurate cost basis calculation is essential for determining taxable gain on property sales, inheritance tax calculations, and gifting scenarios.

4. Using the Calculator

Tips: Enter all amounts in USD. Original Basis is required; other fields can be left blank (will be treated as zero). Values must be positive numbers.

5. Frequently Asked Questions (FAQ)

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

Q2: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years using the straight-line method.

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

Q4: When should I adjust my cost basis?
A: Basis should be tracked continuously, with adjustments made for improvements when they occur and depreciation annually.

Q5: How does this affect capital gains?
A: Capital gain = Sale price - Selling expenses - Adjusted basis. Higher adjusted basis means lower taxable gain.