1. What is Adjusted Basis?

The adjusted basis of a second home is the original purchase price plus the cost of improvements, minus any depreciation taken. It's used to determine capital gains when the property is sold.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• Purchase Price — Original cost of the property
• Improvements — Capital improvements that add value to the property
• Depreciation — Annual depreciation deductions taken (if rented)

Explanation: The formula accounts for the total investment in the property, adjusted for any tax benefits received through depreciation.

3. Importance of Cost Basis Calculation

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

4. Using the Calculator

Tips: Enter all amounts in USD. Include all capital improvements (not repairs) and any depreciation claimed on tax returns if the property was rented.

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). Routine maintenance doesn't count.

Q2: When is depreciation required?
A: Only if the property was used as a rental or business property. Personal residences don't depreciate.

Q3: How is capital gain calculated?
A: Sale price minus selling expenses minus adjusted basis equals capital gain.

Q4: Are there special rules for inherited property?
A: Yes, inherited property typically gets a "step-up" in basis to fair market value at date of death.

Q5: How does this differ from primary residence?
A: Primary residences may qualify for capital gains exclusions ($250k single/$500k married) that don't apply to second homes.