1. What is Adjusted Tax Basis?

Adjusted tax basis represents the original cost of an asset adjusted for various factors including capital improvements and depreciation. It's used to determine gain or loss when the asset is sold or disposed of for tax purposes.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( \text{Original Basis} \) — Initial purchase price of the asset
• \( \text{Capital Additions} \) — Cost of improvements and additions that increase the property's value
• \( \text{Depreciation} \) — Total depreciation claimed on the asset over time

Explanation: This calculation adjusts the original cost basis to reflect changes in the asset's value due to improvements and wear over time.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for determining capital gains tax liability when selling property, calculating depreciation recapture, and proper tax reporting for asset dispositions.

4. Using the Calculator

Tips: Enter original basis (purchase price), capital additions (improvement costs), and total depreciation claimed. All values must be in dollars and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What is included in capital additions?
A: Capital additions include costs of improvements that add value to the property, extend its life, or adapt it to new uses (e.g., room additions, roof replacement, major renovations).

Q2: What is the difference between repairs and capital improvements?
A: Repairs maintain the property's current condition and are deductible expenses, while capital improvements enhance the property's value and are added to the basis.

Q3: How is depreciation calculated?
A: Depreciation is typically calculated using methods prescribed by tax authorities (e.g., MACRS for business property) based on the asset's useful life and recovery period.

Q4: When is adjusted basis used?
A: Adjusted basis is used when calculating gain or loss on sale, determining depreciation recapture, and for inheritance and gift tax purposes.

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