1. What Is Real Estate Cost Basis?

The adjusted basis of real estate represents the total investment in a property for tax purposes. It includes the original purchase price plus capital improvements, minus any depreciation taken over the ownership period.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Purchase Price} \) — Original cost to acquire the property
• \( \text{Improvements} \) — Capital improvements made to the property
• \( \text{Depreciation} \) — Total depreciation claimed on the property

Explanation: The adjusted basis is crucial for calculating capital gains when selling a property. A higher basis results in lower taxable gain.

3. Importance Of Cost Basis Calculation

Details: Accurate cost basis calculation is essential for determining capital gains tax liability, estate planning, and proper tax reporting when selling investment or rental properties.

4. Using The Calculator

Tips: Enter all amounts in dollars. Include only capital improvements (not routine maintenance) and total depreciation claimed over the ownership period. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements add value to the property, prolong its life, or adapt it to new uses (e.g., new roof, room addition, kitchen remodel).

Q2: How is depreciation calculated?
A: For residential rental property, depreciate over 27.5 years using the straight-line method. Commercial property uses 39 years.

Q3: Does land value get depreciated?
A: No, land is not depreciable. Only the building and improvements can be depreciated.

Q4: What if I inherited the property?
A: Inherited property typically gets a stepped-up basis to fair market value at the date of death.

Q5: How does adjusted basis affect taxes?
A: When selling, taxable gain = Sale price - Adjusted basis - Selling expenses. Lower adjusted basis means higher taxable gain.