1. What is Adjusted Cost Basis?

Adjusted cost basis refers to the original cost of an asset adjusted for various factors such as improvements, depreciation, and other capital expenditures. It is used to determine capital gains or losses for tax purposes when the asset is sold.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Original Basis} \) — Initial purchase price of the asset
• \( \text{Additions} \) — Capital improvements and additions to the asset
• \( \text{Subtractions} \) — Depreciation, casualty losses, or other reductions

Explanation: This calculation helps determine the true cost basis of an asset after accounting for all relevant adjustments over time.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability, estate planning, and making informed investment decisions.

4. Using the Calculator

Tips: Enter the original purchase price, all capital improvements as additions, and any depreciation or losses as subtractions. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as an addition to basis?
A: Capital improvements that increase the value of the property, such as renovations, additions, or major repairs that extend the property's life.

Q2: What are common subtractions from basis?
A: Depreciation deductions, casualty losses not covered by insurance, and certain tax credits received.

Q3: Why is adjusted basis important for taxes?
A: It determines the capital gain or loss when you sell the asset, which directly affects your tax liability.

Q4: How does adjusted basis differ from market value?
A: Adjusted basis represents your investment in the asset, while market value is what the asset could sell for in the current market.

Q5: Should I keep records of basis adjustments?
A: Yes, maintaining detailed records of all basis adjustments is essential for accurate tax reporting and audit protection.