1. What Is Adjusted Basis For Rental Property?

The adjusted basis of a rental property represents the property's cost basis after accounting for capital improvements and accumulated depreciation. It is used to determine capital gains or losses when the property is sold.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Cost} \) — Original purchase price of the property
• \( \text{Improvements} \) — Cost of capital improvements made to the property
• \( \text{Depreciation} \) — Total depreciation claimed on the property

Explanation: The adjusted basis starts with the original cost, increases with capital improvements, and decreases by depreciation deductions taken over the years.

3. Importance Of Adjusted Basis Calculation

Details: Calculating adjusted basis is essential for tax purposes when selling rental property. It determines the taxable gain or loss and affects capital gains tax liability.

4. Using The Calculator

Tips: Enter the original property cost, total cost of improvements, and total depreciation claimed. All values must be in dollars and non-negative.

5. Frequently Asked Questions (FAQ)

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

Q2: How is depreciation calculated for rental property?
A: Residential rental property is typically depreciated over 27.5 years using the straight-line method, starting when the property is placed in service.

Q3: What's the difference between repairs and improvements?
A: Repairs maintain current condition and are expensed immediately, while improvements enhance value and are capitalized as part of basis.

Q4: When do I need to know my adjusted basis?
A: When selling the property, calculating rental property conversion to personal use, or determining casualty loss deductions.

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