1. What Is Adjusted Basis?

Adjusted basis refers to the original cost of an asset adjusted for various factors such as improvements, depreciation, and other capital expenditures. It represents the actual investment in an asset for tax purposes and is used to calculate capital gains or losses when the asset is sold.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Cost Basis — Original purchase price of the asset plus acquisition costs
• Improvements — Capital improvements that add value to the asset
• Depreciation — Accumulated depreciation claimed on the asset

Explanation: The adjusted basis starts with the original cost and increases for improvements while decreasing for depreciation taken over time.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability, calculating depreciation recapture, and making informed decisions about asset sales or exchanges.

4. Using The Calculator

Tips: Enter all values in dollars. Cost basis should include purchase price plus any acquisition costs. Improvements should include only capital improvements (not repairs). Depreciation should reflect total depreciation claimed to date.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between cost basis and adjusted basis?
A: Cost basis is the original investment amount, while adjusted basis reflects changes from improvements, depreciation, and other adjustments over time.

Q2: What types of improvements increase adjusted basis?
A: Capital improvements that add value, prolong life, or adapt to new uses (e.g., room additions, roof replacement, major renovations).

Q3: How does depreciation affect adjusted basis?
A: Each depreciation deduction reduces the adjusted basis, which can result in higher taxable gains when the asset is sold.

Q4: When is adjusted basis used?
A: Primarily for calculating capital gains/losses on asset sales, determining depreciation recapture, and for like-kind exchanges.

Q5: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If calculations result in a negative value, the adjusted basis is considered zero.