1. What Is Basis Calculation?

Basis calculation determines the original value of an investment property for tax purposes. It includes the purchase price plus improvements, minus any depreciation taken over time.

2. How Does The Calculator Work?

The calculator uses the basis formula:

Where:

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

Explanation: This calculation provides the adjusted basis of the property, which is used to determine capital gains or losses when the property is sold.

3. Importance Of Basis Calculation

Details: Accurate basis calculation is essential for determining taxable gains when selling investment property, calculating depreciation deductions, and estate planning purposes.

4. Using The Calculator

Tips: Enter all amounts in dollars. Purchase and improvements should be positive values. Depreciation should reflect the total amount claimed over the ownership period.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as an improvement?
A: Improvements are additions or upgrades that increase property value, prolong its useful life, or adapt it to new uses (e.g., new roof, room additions, major renovations).

Q2: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years using the straight-line method. Commercial property is depreciated over 39 years.

Q3: Can basis be adjusted after purchase?
A: Yes, basis can be increased by capital improvements and decreased by depreciation deductions and casualty losses.

Q4: Why is accurate basis important?
A: It directly affects the amount of capital gains tax owed when the property is sold. A higher basis means lower taxable gain.

Q5: Are there different types of basis?
A: Yes, including original basis, adjusted basis, and cost basis. This calculator computes the adjusted basis for tax purposes.