1. What is Adjusted Basis?

The adjusted basis of a home is the original purchase price plus the cost of improvements minus any depreciation taken. This figure is used to determine capital gains when selling a property.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• Purchase Price — The original amount paid for the property
• Improvements — Capital improvements that add value to the property
• Depreciation — Amount deducted for wear and tear (if property was rented)

Explanation: The adjusted basis represents your true investment in the property for tax purposes.

3. Importance of Cost Basis Calculation

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

4. Using the Calculator

Tips: Enter all amounts in USD. Include all capital improvements but exclude routine maintenance. Depreciation only applies if the property was used for rental or business purposes.

5. Frequently Asked Questions (FAQ)

Q1: What counts as an improvement?
A: Improvements that add value, prolong life, or adapt to new uses (e.g., new roof, addition, kitchen remodel). Routine repairs don't count.

Q2: How do I find my depreciation amount?
A: If you rented the property, check your tax returns for annual depreciation deductions. For personal residences, depreciation typically doesn't apply.

Q3: Does land value factor into basis?
A: Yes, the purchase price includes both land and building value. However, land isn't depreciable.

Q4: What about selling costs?
A: Selling costs (agent commissions, etc.) don't affect basis but can be deducted from the sale price when calculating gain.

Q5: How does this differ from tax basis?
A: This is your tax basis. It's used to calculate gain by subtracting from sale price (minus selling expenses).