1. What Is Adjusted Cost Basis?

Adjusted cost basis represents the total cost of a property including purchase price plus improvements, minus any depreciation taken. It's used to determine capital gains when selling a property and for tax purposes.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original cost of the property
• \( \text{Improvements} \) — Capital improvements made to the property
• \( \text{Depreciation} \) — Depreciation claimed on the property

Explanation: This calculation helps determine the true cost basis of your home after accounting for investments in improvements and tax deductions for depreciation.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling a property, estate planning, and proper tax reporting.

4. Using the Calculator

Tips: Enter purchase price in dollars, total improvements in dollars, and total depreciation in dollars. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What counts as home improvements?
A: Capital improvements that add value to the home or prolong its life, such as room additions, kitchen renovations, new roofing, or permanent fixtures.

Q2: What doesn't count as improvements?
A: Routine maintenance and repairs that don't add significant value, such as painting, cleaning, or minor fixes.

Q3: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years for residential property using the straight-line method.

Q4: Why is adjusted basis important for taxes?
A: Adjusted basis determines your capital gain when selling: Sale Price - Adjusted Basis = Capital Gain.

Q5: Can adjusted basis be negative?
A: No, adjusted basis should not be negative. If calculations show negative, review your depreciation claims and improvement records.