1. What is Adjusted Basis?

The adjusted basis is the original cost of a property plus the cost of capital improvements minus any depreciation deductions taken. It's used to determine capital gains or losses 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 that add value to the property
• Depreciation — Accumulated depreciation deductions taken

Explanation: The formula accounts for the original investment plus any value-adding improvements, minus the depreciation that has been claimed for tax purposes.

3. Importance of Adjusted Basis Calculation

Details: Accurate basis calculation is crucial for determining capital gains taxes when selling property. A higher basis means lower taxable gain when the property is sold.

4. Using the Calculator

Tips: Enter all amounts in USD. Include all capital improvements but exclude routine maintenance. Depreciation should include all depreciation claimed over the ownership period.

5. Frequently Asked Questions (FAQ)

Q1: What counts as a capital improvement?
A: Improvements that add value, prolong life, or adapt to new uses (e.g., new roof, addition) - not routine repairs.

Q2: How is depreciation calculated?
A: Residential property depreciates over 27.5 years, commercial over 39 years (straight-line method).

Q3: What if I inherited the property?
A: Basis becomes fair market value at time of inheritance (stepped-up basis).

Q4: Does refinancing affect basis?
A: No, loans don't affect basis. Only actual expenditures change basis.

Q5: How does this affect my taxes when I sell?
A: Selling price minus adjusted basis equals capital gain (or loss) for tax purposes.