1. What Is Adjusted Basis?

Adjusted basis refers to the original cost of an asset plus any capital improvements or additions, minus any depreciation or reductions. It is used to determine capital gains or losses when the asset is sold.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

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

Explanation: The adjusted basis represents the true investment in an asset for tax purposes, accounting for all capital expenditures and value adjustments over time.

3. Importance Of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining taxable capital gains, calculating depreciation deductions, and making informed investment decisions.

4. Using The Calculator

Tips: Enter the original cost in dollars, any capital additions in dollars, and any reductions in dollars. All values must be non-negative numbers.

5. Frequently Asked Questions (FAQ)

Q1: What types of assets use adjusted basis?
A: Real estate, business assets, investment properties, and capital assets that appreciate or depreciate over time.

Q2: What counts as additions to basis?
A: Capital improvements, legal fees, zoning costs, major repairs that extend useful life, and other permanent enhancements.

Q3: What are common reductions to basis?
A: Depreciation deductions, casualty losses not covered by insurance, tax credits received, and certain deductible expenses.

Q4: How does adjusted basis affect taxes?
A: When you sell an asset, your capital gain is calculated as selling price minus adjusted basis, which determines your tax liability.

Q5: Is adjusted basis the same as market value?
A: No, adjusted basis is your investment in the asset for tax purposes, while market value is what the asset could sell for currently.