1. What Is Adjusted Basis Of Property?

Adjusted basis refers to the original cost of a property plus the cost of improvements minus any depreciation taken. It's used to determine gain or loss when the property is sold and for calculating depreciation deductions.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Purchase Price — Original cost of acquiring the property
• Improvements — Capital improvements made to the property
• Depreciation — Total depreciation claimed on the property

Explanation: This calculation adjusts the original cost basis to reflect changes in the property's value over time due to improvements and depreciation.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for tax purposes, particularly when selling property, as it determines the taxable gain or loss. It also affects depreciation deductions for rental or business properties.

4. Using The Calculator

Tips: Enter all amounts in dollars. Purchase price and improvements should be positive values. Depreciation should reflect the total amount claimed over the property's holding period.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as an improvement?
A: Improvements are additions or upgrades that increase property value, prolong its life, or adapt it to new uses. Routine repairs and maintenance do not qualify.

Q2: How is depreciation calculated?
A: Depreciation is typically calculated using the Modified Accelerated Cost Recovery System (MACRS) for tax purposes, spreading the cost over the property's useful life.

Q3: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If depreciation claimed exceeds purchase price plus improvements, the adjusted basis is zero.

Q4: Why is adjusted basis important when selling property?
A: Adjusted basis is subtracted from the selling price to determine capital gain or loss, which is subject to taxation.

Q5: Does land depreciation affect adjusted basis?
A: Land is not depreciable, so only improvements to the land or structures on it are subject to depreciation.