1. What is Adjusted Basis?

The adjusted basis of a rental property is the original cost of the property plus capital improvements, minus any depreciation taken. 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:

• \( cost \) — Original purchase price of the property
• \( depreciation \) — Total depreciation claimed over ownership period
• \( capital\_improvements \) — Cost of permanent improvements that add value

Explanation: The formula accounts for the property's original cost, reductions for depreciation taken, and additions for capital improvements made.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable gain when selling a rental property and for proper tax reporting.

4. Using the Calculator

Tips: Enter all values in dollars. Cost is the original purchase price, depreciation is the total amount claimed, and capital improvements are permanent upgrades (not repairs).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between cost basis and adjusted basis?
A: Cost basis is the original purchase price, while adjusted basis includes adjustments for depreciation and improvements.

Q2: What counts as a capital improvement?
A: Improvements that add value, prolong life, or adapt to new uses (e.g., new roof, addition) - not routine repairs.

Q3: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years using the straight-line method.

Q4: Why is adjusted basis important when selling?
A: It reduces your taxable gain (sale price minus selling expenses minus adjusted basis equals capital gain).

Q5: Where can I find my property's cost basis?
A: Check your original purchase documents, settlement statement, or tax records for the purchase price and closing costs.