1. What is Adjusted Basis?

Adjusted basis refers to the original cost of a property plus capital improvements, minus depreciation and casualty losses. It represents the property's value for tax purposes when calculating capital gains or losses upon sale.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Original Basis — Initial purchase price plus acquisition costs
• Capital Improvements — Major improvements that add value or extend life
• Depreciation — Decrease in value due to wear and tear
• Casualty Losses — Losses from theft, damage, or destruction

Explanation: This calculation determines the property's tax basis, which is used to calculate capital gains when the property is sold.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gains on property sales, estate planning, and proper tax reporting to avoid penalties.

4. Using the Calculator

Tips: Enter all values in dollars. Original basis includes purchase price and acquisition costs. Capital improvements should be significant, permanent additions. Depreciation and casualty losses should be documented amounts.

5. Frequently Asked Questions (FAQ)

Q1: What is included in original basis?
A: Purchase price plus legal fees, title insurance, recording fees, and other acquisition costs.

Q2: What qualifies as capital improvements?
A: Major renovations like room additions, new roof, kitchen remodel, or permanent landscaping that increase property value.

Q3: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years for residential or 39 years for commercial properties.

Q4: What are casualty losses?
A: Losses from events like fire, storm damage, theft, or vandalism that are sudden, unexpected, or unusual.

Q5: Why is adjusted basis important for taxes?
A: It determines the capital gain or loss when selling property: Selling Price - Adjusted Basis = Taxable Gain/Loss.