1. What is Adjusted Basis of Property?

The adjusted basis of property is the original cost basis adjusted for various factors including improvements, depreciation, and other capital expenditures. It represents the property's value for tax purposes when calculating capital gains or losses upon sale.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Cost Basis} \) — Original purchase price plus acquisition costs
• \( \text{Improvements} \) — Capital improvements that add value to the property
• \( \text{Depreciation} \) — Accumulated depreciation claimed on the property

Explanation: The adjusted basis accounts for changes in the property's value due to improvements and wear over time, providing an accurate basis for tax calculations.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling property, calculating depreciation recapture, and making informed investment decisions.

4. Using the Calculator

Tips: Enter cost basis in dollars (original purchase price), improvements in dollars (capital expenditures), and depreciation in dollars (accumulated depreciation). All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is included in cost basis?
A: Cost basis includes purchase price plus acquisition costs such as legal fees, title insurance, and recording fees.

Q2: What qualifies as improvements?
A: Capital improvements that add value, prolong life, or adapt to new uses, such as room additions, roof replacement, or HVAC system installation.

Q3: How is depreciation calculated?
A: Depreciation is typically calculated using MACRS method over the property's useful life (27.5 years for residential, 39 years for commercial).

Q4: When is adjusted basis used?
A: Adjusted basis is used when calculating capital gains upon sale, determining depreciation recapture, and calculating casualty loss deductions.

Q5: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If depreciation exceeds cost basis plus improvements, the adjusted basis is zero.