1. What is Adjusted Basis of Property?

The adjusted basis of property is the original cost or other basis of the property, plus the cost of any improvements or additions, minus any deductions such as depreciation or casualty losses. It's used to determine gain or loss when the property is sold.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• Original Basis — Typically what you paid for the property plus certain costs
• Additions — Costs of improvements or additions that increase the property's value
• Reductions — Amounts that decrease the property's value (depreciation, casualty losses, etc.)

3. Importance of Adjusted Basis Calculation

Details: Calculating adjusted basis is essential for determining capital gains or losses when selling property, calculating depreciation, and for tax reporting purposes.

4. Using the Calculator

Tips: Enter the original basis of the property, any additions (improvements), and any reductions (depreciation, losses). All values must be non-negative dollar amounts.

5. Frequently Asked Questions (FAQ)

Q1: What's included in original basis?
A: Original basis typically includes purchase price plus settlement fees, legal costs, and other expenses of purchase.

Q2: What counts as an addition?
A: Improvements that add value to the property, prolong its life, or adapt it to new uses (like a new roof or addition).

Q3: What are common reductions?
A: Depreciation, casualty losses, insurance reimbursements, and certain tax credits.

Q4: How does this differ from market value?
A: Adjusted basis is your investment in the property for tax purposes, which may be very different from current market value.

Q5: Why is adjusted basis important when selling?
A: Your taxable gain is the sale price minus selling expenses minus your adjusted basis. Accurate basis calculation minimizes tax liability.