1. What Is Adjusted Cost Basis?

The Adjusted Cost Basis (ACB) represents the total cost of a rental property for tax purposes, including the original purchase price plus capital improvements, minus accumulated depreciation. It is used to determine capital gains or losses when the property is sold.

2. How Does The Calculator Work?

The calculator uses the ACB 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: The adjusted cost basis accounts for all investments in the property while reducing it by the depreciation expenses claimed over the ownership period.

3. Importance Of ACB Calculation

Details: Accurate ACB calculation is crucial for determining taxable capital gains when selling a rental property. A higher ACB results in lower taxable gains, while proper documentation of improvements can significantly increase your cost basis.

4. Using The Calculator

Tips: Enter the original purchase price, total cost of all capital improvements, and total depreciation claimed. All values must be in dollars and non-negative. Capital improvements include major renovations, additions, and significant upgrades that extend the property's life or increase its value.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements are permanent enhancements that increase property value, adapt it to new uses, or extend its life. Examples include roof replacement, room additions, kitchen remodeling, and HVAC system upgrades.

Q2: How is depreciation calculated?
A: Residential rental property is depreciated over 27.5 years using the straight-line method. The depreciable basis is typically the building value (excluding land).

Q3: Can repairs be included in ACB?
A: No, routine repairs and maintenance are considered operating expenses and cannot be added to the cost basis. Only capital improvements qualify.

Q4: What happens if I don't track improvements?
A: Failure to document improvements can result in paying higher capital gains taxes when you sell, as you won't be able to increase your cost basis properly.

Q5: How does ACB affect capital gains tax?
A: Capital gain = Selling price - Selling expenses - ACB. A higher ACB means lower taxable gain, resulting in less capital gains tax owed.