1. What is Adjusted Cost Basis?

The Adjusted Cost Basis represents the total amount invested in a property for tax purposes. It includes the original purchase price plus any additional costs, minus any deductions like depreciation or losses.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• Purchase Price — Original amount paid for the property
• Closing Costs — Fees paid during the property purchase
• Improvements — Capital improvements made to the property
• Depreciation — Total depreciation claimed on the property
• Losses — Any casualty or theft losses claimed

Explanation: The formula accounts for all investments in the property while subtracting any deductions that reduce the tax basis.

3. Importance of Cost Basis Calculation

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

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What counts as a capital improvement?
A: Improvements that add value to the property, prolong its life, or adapt it to new uses (e.g., new roof, addition, major renovation).

Q2: How is depreciation calculated?
A: Residential properties depreciate over 27.5 years. Divide the property value (excluding land) by 27.5 for annual depreciation.

Q3: What closing costs can be included?
A: Include title fees, legal fees, recording fees, transfer taxes, and any other costs directly related to the purchase.

Q4: When should I adjust my cost basis?
A: Adjust whenever you make improvements or claim depreciation. Keep detailed records for tax time.

Q5: How does cost basis affect my taxes?
A: When you sell, your taxable gain is the sale price minus selling expenses minus your adjusted cost basis.