1. What is Cost Basis in Property?

The cost basis of a property is the original value of an asset for tax purposes, usually the purchase price, adjusted for various factors. It's used to determine capital gains or losses when the property is sold.

2. How Does the Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( acquisition\_cost \) — Original purchase price of the property
• \( fees \) — Closing costs, legal fees, and other acquisition expenses
• \( improvements \) — Capital improvements that add value to the property

Explanation: The equation accounts for all costs associated with acquiring and improving the property to determine its true cost basis.

3. Importance of Cost Basis Calculation

Details: Accurate cost basis calculation is crucial for determining capital gains taxes when selling property. A higher cost basis means lower taxable gains.

4. Using the Calculator

Tips: Enter all amounts in dollars. Include all acquisition costs, fees, and capital improvements (not routine maintenance).

5. Frequently Asked Questions (FAQ)

Q1: What's included in acquisition costs?
A: Purchase price, closing costs, title fees, transfer taxes, and other expenses directly related to acquiring the property.

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

Q3: How does cost basis affect taxes?
A: When you sell, your taxable gain is sale price minus selling expenses minus your cost basis.

Q4: Does cost basis include mortgage?
A: No, cost basis includes what you paid (or will pay) for the property, not how you financed it.

Q5: Can cost basis decrease?
A: Yes, through depreciation deductions if the property is used for business or rental purposes.