1. What Is The Homeowners Cost Basis Calculator?

The Homeowners Cost Basis Calculator computes the adjusted basis of a property using the formula: CB = PC + IC - D. This calculation is essential for determining capital gains tax liability when selling a property.

2. How Does The Calculator Work?

The calculator uses the cost basis formula:

Where:

• \( PC \) — Purchase Cost: The original purchase price of the property ($)
• \( IC \) — Improvements: Cost of any capital improvements made to the property ($)
• \( D \) — Depreciation: Total depreciation claimed on the property ($)
• \( CB \) — Adjusted Cost Basis: The final calculated basis ($)

Explanation: The formula adjusts the original purchase price by adding improvement costs and subtracting depreciation to determine the current tax basis of the property.

3. Importance Of Cost Basis Calculation

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

4. Using The Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as a capital improvement?
A: Capital improvements are permanent additions that increase property value, such as renovations, new roofing, or additions. Routine maintenance and repairs do not qualify.

Q2: How is depreciation calculated for rental properties?
A: Residential rental properties are typically depreciated over 27.5 years using the straight-line method. Commercial properties use 39 years.

Q3: Does cost basis include closing costs?
A: Yes, certain closing costs from the original purchase can be added to the cost basis, including legal fees, title insurance, and recording fees.

Q4: How does cost basis affect capital gains tax?
A: Capital gains tax is calculated on the difference between selling price and adjusted cost basis. A higher cost basis results in lower taxable gain.

Q5: Can cost basis be adjusted after purchase?
A: Yes, cost basis can be increased by capital improvements and decreased by depreciation deductions and casualty losses.