1. What Is Home Basis Calculation?

The adjusted basis calculation determines the true cost basis of a home for tax purposes by accounting for purchase price, capital improvements, and depreciation. This figure is essential for calculating capital gains when selling a property.

2. How Does The Calculator Work?

The calculator uses the adjusted basis formula:

Where:

• \( Purchase\ Price \) — Original cost of purchasing the home
• \( Improvements \) — Capital improvements made to the property
• \( Depreciation \) — Accumulated depreciation claimed on the property

Explanation: This calculation adjusts the original purchase price to reflect the true investment in the property, accounting for value-added improvements and value reduction through depreciation.

3. Importance Of Adjusted Basis

Details: Accurate basis calculation is crucial for determining capital gains tax liability when selling a property, calculating depreciation deductions for rental properties, and estate planning purposes.

4. Using The Calculator

Tips: Enter all amounts in dollars. Include only capital improvements (not routine repairs) and use actual depreciation amounts from tax records. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements add value to the property, prolong its life, or adapt it to new uses (e.g., room additions, new roof, kitchen remodel).

Q2: How is depreciation calculated?
A: For rental properties, depreciation is typically calculated over 27.5 years using the straight-line method on the building value (excluding land).

Q3: Does land value affect basis calculation?
A: Yes, the purchase price should be allocated between land and building, as land is not depreciable but affects the overall basis.

Q4: When is adjusted basis used?
A: Primarily for calculating capital gains upon sale, determining inheritance basis, and for rental property tax reporting.

Q5: Are there special rules for inherited property?
A: Yes, inherited property typically receives a "step-up" in basis to fair market value at the date of death, which may eliminate capital gains.