1. What is Adjusted Basis?

The adjusted basis is the original cost of an asset plus the cost of improvements and minus any deductions such as depreciation or losses. It's used to determine capital gains or losses when the asset is sold.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Original Cost — Initial purchase price of the asset
• Additions — Costs of improvements or additions to the asset
• Deductions — Depreciation, casualty losses, or other reductions

Explanation: The formula accounts for changes to the original cost basis over time due to improvements or depreciation.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains taxes when selling property or assets. It helps ensure you pay the correct amount of tax and don't overpay.

4. Using the Calculator

Tips: Enter all amounts in USD. Original cost must be positive, while additions and deductions should be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as an addition to basis?
A: Improvements that add value to the property, extend its life, or adapt it to new uses (e.g., renovations, additions, legal fees).

Q2: What are common deductions from basis?
A: Depreciation, casualty losses, insurance reimbursements, and certain tax credits.

Q3: How does adjusted basis affect taxes?
A: When you sell an asset, your taxable gain is the sale price minus the adjusted basis. A higher adjusted basis means lower taxable gain.

Q4: Is land included in adjusted basis?
A: Land isn't depreciated, so its basis typically only changes through additions like improvements to the land.

Q5: How often should I calculate adjusted basis?
A: Update it whenever you make improvements or claim depreciation, and always before selling the asset.