Home Adjusted Basis Calculator

Adjusted Basis Formula:

\[ Adjusted\ Basis = Purchase\ Price + Improvements - Depreciation \]

Adjusted Basis:

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1. What is Home Adjusted Basis?

The Adjusted Basis of a home represents the total investment in the property for tax purposes. It includes the original purchase price plus any capital improvements, minus any depreciation taken on the property.

2. How Does the Calculator Work?

The calculator uses the Adjusted Basis formula:

\[ Adjusted\ Basis = Purchase\ Price + Improvements - Depreciation \]

Where:

\( Purchase\ Price \) — Original cost of purchasing the property
\( Improvements \) — Cost of capital improvements made to the property
\( Depreciation \) — Total depreciation claimed on the property

Explanation: The adjusted basis is used to determine capital gains or losses when selling the property and affects the amount of taxable gain.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling a property, calculating depreciation deductions, and estate planning purposes.

4. Using the Calculator

Tips: Enter all amounts in dollars. Include only capital improvements (not routine maintenance) and ensure depreciation amounts are accurate based on IRS guidelines.

5. Frequently Asked Questions (FAQ)

Q1: What counts as a capital improvement?
A: Capital improvements are additions or renovations that increase the property's value, extend its life, or adapt it to new uses (e.g., room additions, roof replacement, kitchen remodel).

Q2: What doesn't count as an improvement?
A: Routine maintenance and repairs that keep the property in normal operating condition (e.g., painting, fixing leaks, replacing broken windows).

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

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

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