1. What is Adjusted Basis?

Adjusted basis refers to the original cost of an asset adjusted for various factors such as improvements, depreciation, and other capital expenditures. It represents the current value of an asset for tax and accounting purposes.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Cost Basis} \) — Original purchase price of the asset
• \( \text{Improvements} \) — Capital improvements made to the asset
• \( \text{Depreciation} \) — Accumulated depreciation on the asset

Explanation: The formula calculates the current tax basis of an asset by starting with the original cost, adding capital improvements, and subtracting accumulated depreciation.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains or losses when selling an asset, calculating depreciation deductions, and ensuring proper tax reporting for business and investment properties.

4. Using the Calculator

Tips: Enter the original cost basis, total improvements made, and accumulated depreciation. All values must be in the same currency and non-negative. The calculator will compute the adjusted basis.

5. Frequently Asked Questions (FAQ)

Q1: What is included in cost basis?
A: Cost basis includes the purchase price plus any acquisition costs such as legal fees, title insurance, and closing costs.

Q2: What qualifies as improvements?
A: Improvements are capital expenditures that add value to the property, extend its life, or adapt it to new uses (e.g., room additions, roof replacement, major renovations).

Q3: How is depreciation calculated?
A: Depreciation is typically calculated using methods like straight-line or MACRS over the asset's useful life as defined by tax authorities.

Q4: When is adjusted basis used?
A: Adjusted basis is used when calculating capital gains tax upon sale, determining depreciation deductions, and for insurance and estate planning purposes.

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