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 is used to determine the capital gain or loss when the asset is sold.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Original Cost — The initial purchase price of the asset
• Improvements — Capital improvements that increase the property's value
• Depreciation — Reduction in value due to wear and tear or obsolescence

Explanation: The adjusted basis represents the true investment in the property for tax purposes, accounting for both value-enhancing improvements and value-reducing depreciation.

3. Importance Of Adjusted Basis Calculation

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

4. Using The Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What types of improvements increase adjusted basis?
A: Capital improvements such as room additions, kitchen renovations, roof replacement, and permanent installations that add value to the property.

Q2: How is depreciation calculated?
A: Depreciation is typically calculated using methods like straight-line or accelerated depreciation over the asset's useful life as defined by tax authorities.

Q3: Why is adjusted basis important for taxes?
A: Adjusted basis determines the capital gain (selling price minus adjusted basis) which is subject to capital gains tax when you sell the property.

Q4: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If depreciation exceeds the sum of original cost and improvements, the adjusted basis is zero.

Q5: What's the difference between adjusted basis and market value?
A: Adjusted basis is your investment in the property for tax purposes, while market value is what the property could sell for in the current market.