1. What is Adjusted Cost Basis?

The adjusted cost basis of a property is the original purchase price plus any additional costs incurred to acquire and improve the property, minus any depreciation or losses. It's used to determine capital gains when selling the property.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• Purchase Price — The original price paid for the property
• Closing Costs — Fees paid at property purchase (title insurance, attorney fees, etc.)
• Improvements — Capital improvements that add value to the property
• Depreciation — Amount deducted for wear and tear (if property was rented)
• Losses — Casualty or theft losses claimed on tax returns

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is essential for determining capital gains tax when selling a property. A higher basis means lower taxable gain.

4. Using the Calculator

Tips: Enter all amounts in USD. Include all relevant costs and deductions. Keep records of all improvements and depreciation taken.

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, kitchen remodel). Repairs/maintenance don't count.

Q2: How is depreciation calculated?
A: For rental properties, divide building value (not land) by 27.5 years (residential) or 39 years (commercial).

Q3: What closing costs can be added to basis?
A: Recording fees, title insurance, legal fees, survey costs, transfer taxes, and any mortgage fees the buyer pays.

Q4: How does cost basis affect taxes when selling?
A: Selling price minus adjusted basis equals capital gain (or loss). Primary residences may qualify for exclusion.

Q5: Should I include refinancing costs?
A: No, loan costs (points, fees) aren't added to basis, though points may be deductible over loan term.