1. What is Asset Adjusted Basis?

The Adjusted Basis of an asset represents the original cost of the asset plus any capital improvements and minus any depreciation or other reductions. It is used to determine capital gains or losses when the asset is sold or disposed of.

2. How Does the Calculator Work?

The calculator uses the adjusted basis formula:

Where:

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

Explanation: This calculation helps determine the true cost basis of an asset for tax purposes when calculating capital gains or losses.

3. Importance of Adjusted Basis Calculation

Details: Accurate adjusted basis calculation is crucial for proper tax reporting, determining capital gains tax liability, and making informed financial decisions about asset disposition.

4. Using the Calculator

Tips: Enter the original purchase price, all capital improvements as additions, and any depreciation or reductions as subtractions. All values must be in currency format and non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What constitutes "additions" to basis?
A: Additions include capital improvements, legal fees for title acquisition, zoning costs, and other expenses that increase the value of the asset.

Q2: What are common "subtractions" from basis?
A: Subtractions include depreciation deductions, casualty losses not covered by insurance, and certain tax credits received.

Q3: Why is adjusted basis important for taxes?
A: Adjusted basis determines the gain or loss when you sell an asset, which affects your capital gains tax liability.

Q4: How does adjusted basis differ from market value?
A: Adjusted basis represents your investment in the asset, while market value is what the asset could sell for in the current market.

Q5: Can adjusted basis be negative?
A: No, adjusted basis cannot be negative. If subtractions exceed the sum of original basis and additions, the adjusted basis is zero.