1. What Is Adjusted Basis?

Adjusted basis refers to the original cost of a rental property plus the cost of improvements minus accumulated depreciation. It is used to determine capital gains or losses when selling the property and for calculating depreciation deductions.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Cost} \) — Original purchase price of the property
• \( \text{Improvements} \) — Capital improvements made to the property
• \( \text{Depreciation} \) — Accumulated depreciation taken on the property

Explanation: The adjusted basis represents the property's current value for tax purposes after accounting for improvements and depreciation deductions.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gain or loss when selling rental property, ensuring proper tax reporting, and maximizing legitimate tax deductions.

4. Using The Calculator

Tips: Enter the original property cost, total cost of improvements, and accumulated depreciation in dollars. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements are additions or upgrades that increase property value, extend its life, or adapt it to new uses (e.g., new roof, room additions, major renovations).

Q2: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years using the straight-line method, while commercial property uses 39 years.

Q3: What's the difference between repairs and improvements?
A: Repairs maintain current condition and are expensed immediately, while improvements enhance value and are capitalized (added to basis).

Q4: When is adjusted basis used?
A: Primarily used when calculating capital gains tax upon sale: Selling Price - Adjusted Basis = Taxable Gain.

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