1. What Is Adjusted Cost Basis?

Adjusted Cost Basis (ACB) represents the total cost of an asset for tax purposes, including purchase price plus improvements minus depreciation. It's used to calculate capital gains or losses when the asset is sold.

2. How Does The Calculator Work?

The calculator uses the ACB formula:

Where:

• Original Cost — Purchase price of the property including closing costs
• Improvements — Capital improvements that add value or extend life
• Depreciation — Accumulated depreciation claimed on the property

Explanation: The ACB adjusts the original purchase price to reflect the property's true investment cost for tax calculation purposes.

3. Importance Of ACB Calculation

Details: Accurate ACB calculation is crucial for determining capital gains tax liability when selling property. A higher ACB results in lower taxable gains.

4. Using The Calculator

Tips: Enter all amounts in dollars. Include all capital improvements and accumulated depreciation. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as an improvement?
A: Capital improvements that add value, adapt to new uses, or extend useful life (e.g., room additions, roof replacement, major renovations).

Q2: What's the difference between repairs and improvements?
A: Repairs maintain current condition and are deductible expenses. Improvements enhance value and are added to cost basis.

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

Q4: What costs are included in original cost?
A: Purchase price plus closing costs like legal fees, title insurance, recording fees, and transfer taxes.

Q5: Why is ACB important for tax purposes?
A: ACB determines your capital gain: Selling Price - ACB = Capital Gain. Lower ACB means higher taxable gain.